# REGIONS FINANCIAL CORP (RF) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from REGIONS FINANCIAL CORP's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1281761/000128176122000016/rf-20211231.htm
Accession: 0001281761-22-000016
Filing date: 2022-02-24
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/RF/
All MD&A years: /company/RF/mda/
Next year: /company/RF/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE OVERVIEW

Management believes the following sections provide an overview of several of the most relevant matters necessary for an understanding of the financial aspects of Regions's business, particularly regarding its 2021 results. Cross references to more detailed information regarding each topic within MD&A and the consolidated financial statements are included. This summary is intended to assist in understanding the information provided, but should be read in conjunction with the entire MD&A and consolidated financial statements, as well as the other sections of this Annual Report on Form 10-K.

Economic Environment in Regions’ Banking Markets

One of the primary factors influencing the credit performance of Regions’ loan portfolio is the overall economic environment in the U.S. and the primary markets in which it operates. After preliminary growth of 5.7 percent in 2021, the February baseline forecast anticipates real GDP growth of 4.1 percent in 2022 and 3.2 percent in 2023, the January 2022 baseline forecast anticipates growth of 4.1 percent in 2022 and 3.0 percent in 2023. As in 2020 and 2021, intra-year growth patterns in 2022 will remain subject to period spikes and subsequent declines in COVID-19 case counts, though it could be that these swings in case counts become less disruptive as time goes on. As 2021 was coming to a close, there were signs that global supply chain and logistics bottlenecks were beginning to ease, and Regions expects further progress along these lines in 2022. The Company continues to expect that by late-2023 the economy will be back on the path of growth around 2.0 percent that prevailed prior to the pandemic. As has been the case since the onset of the pandemic, there remains a heightened degree of uncertainty around current economic forecasts.

With manufacturing activity across Asia having come back online, global shipping rates having fallen from their peaks, U.S. motor vehicle producers having recalled idled workers and increased production, late-2021 brought signs that the supply-side constraints that weighed on the U.S. economy over much of the year were easing. Though it will still be some time before supply chains are functioning normally, further progress along these lines will support stepped-up manufacturing activity. With business inventories having been drawn down significantly over the course of 2021, it is anticipated that inventory restocking will be a meaningful tailwind for growth in 2022. Additionally, with production having been curtailed in 2021, manufacturers and homebuilders ended the year with sizable backlogs of unfilled orders and, with supply-side constraints easing, backfilling these orders will also be a tailwind for growth in 2022.

As the supply side of the economy normalizes further over the course of 2022, the demand side of the economy is being waned from the considerable fiscal and monetary support provided in 2020 and 2021. Still, though to a lesser degree than was the case over the prior two years, fiscal and monetary policy will remain accommodative in 2022. While pandemic-related transfer payments such as the three rounds of Economic Impact Payments, supplemental unemployment insurance benefits, and the expanded Child Care Tax Credit have largely run their course, robust growth in labor earnings will help fill the void in disposable personal income. To that point, aggregate private sector wage and salary earnings, the largest single component of personal income, rose at an annualized rate of 11 percent in the fourth quarter of 2021, and while growth will moderate in 2022 it will nonetheless remain well above the pre-pandemic trend rate. Between robust growth in labor earnings, a significant pool of excess saving, and healthy household balance sheets, there are plenty of reasons for continued growth in consumer spending, though elevated inflation will likely weigh on growth in discretionary spending.

Business investment is expected to remain supportive of real GDP growth in 2022. Firms took advantage of favorable financing conditions, including elevated internal cash balances, to embark on replacement investment in machinery and equipment in 2021, and that is expected to continue in 2022. At the same time, firms increased investments in technology and automation in 2021 as a means of either enhancing labor productivity or substituting capital for labor given pressing labor supply constraints. That is expected to continue in 2022, and investment in intellectual property products is expected to remain robust. The one area of business investment that may continue to underperform is investment in structures, particularly as needs for physical office and retail space remain difficult to gauge.

The supply/demand imbalance in the housing market widened during 2021. Inventories of new homes for sale have been held down by shortages of labor and materials, and inventories of existing homes for sale continue to bump along near record-lows. At the same time, demand for home purchases has been fueled by favorable mortgage interest rates and greater freedom in work arrangements for many. The growing supply/demand imbalance has fueled rapid house price appreciation; the HPI was on course to rise by around 15 percent for full-year 2021 and another double-digit increase is expected in 2022 though the pace of price appreciation is expected to slow as the year progresses. It should be noted that, given the extent to which prices have risen to date, affordability has become an increasing issue even in the absence of higher mortgage interest rates. To the extent mortgage interest rates rise in 2022, affordability constraints will become more binding for increased numbers of prospective buyers.

Labor supply constraints have weighed on the pace of growth in nonfarm employment. At year-end 2021, the level of nonfarm employment was 3.6 million jobs below the level as of February 2020, and there were 2.3 million fewer people in the labor force than was the case at the onset of the pandemic. With over 10.5 million open jobs across the U.S. economy as of November 2021, there were more than 1.5 open jobs for each unemployed person. Labor force participation is expected to rise

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in 2022, but the labor force participation rate at year-end 2022 is expected to be well below the pre-pandemic rate. With continued strong demand for labor while labor supply remains constrained, wage growth has been much faster than would otherwise have been the case at this point in the cycle.

As measured by the CPI, inflation is likely to remain at or above 7.0 percent through the first quarter of 2022. The expectation of further easing of supply chain and logistics bottlenecks would contribute to a sharp deceleration in goods price inflation, if not outright goods price deflation. While that would act as a drag on overall inflation, faster growth in services prices is expected, including rent and medical care, and continued robust growth in labor costs to keep inflation easily above the FOMC’s 2.0 percent target rate through 2022. We believe the FOMC will begin raising the Fed funds rate in March and expect four or five 25-basis point hikes by year-end, though market expectations currently anticipate a slightly faster pace of rate hikes. We also anticipate the FOMC will allow the Fed’s balance sheet to begin winding down either late in the second quarter of 2022 or early in the third quarter of 2022. This would be a significant departure from the FOMC’s playbook during the prior cycle, when the Fed’s balance sheet was held steady for nearly three years after the asset purchases ended.

Patterns of economic activity within the Regions footprint are expected to be broadly similar to those seen in the U.S. as a whole. To the extent supply chain and logistics bottlenecks do ease over the course of 2022, an above-average exposure to manufacturing, particularly motor vehicle manufacturing, across much of the footprint will be a tailwind to growth within the footprint. To the extent remote working remains part of the post-pandemic landscape, states such as Florida, Georgia, Tennessee, Texas, and the Carolinas that have consistently benefited from above-average degrees of in-migration should continue to do so, which will provide support to the broader economies of these states.

The continued economic uncertainty, as described above, impacted Regions' forecast utilized in calculating the ACL as of December 31, 2021. See the "Allowance" section for further information.

COVID-19 Pandemic

Following are select areas where the COVID-19 pandemic has impacted the Company.

As a certified SBA lender, Regions provided its customers with the loan process under the PPP Program funding ended in the second quarter of 2021 and the forgiveness process is ongoing. Regions originated PPP loans totaling approximately $6.2 billion, of which approximately 12,600 loans totaling approximately $748 million remain outstanding as of December 31, 2021.

As provided initially in the CARES Act passed into law on March 27, 2020, and subsequently extended through the Consolidated Appropriations Act signed into law on December 27, 2020, certain loan modifications related to the COVID-19 pandemic beginning March 1, 2020, through the earlier of 60 days after the end of the pandemic or January 1, 2022, are eligible for relief from TDR classification. These provisions precluded the majority of impacted loans from being classified as TDRs as of December 31, 2021.

Regions has experienced a modest increase in cyber events as a result of the COVID-19 pandemic, however the Company's layered control environment has effectively detected and prevented any material impact related to these events. Refer to the "Information Security" section for further detail.

2021 Results

Regions reported net income available to common shareholders of $2.4 billion, or $2.49 per diluted share, in 2021 compared to net income available to common shareholders from continuing operations of $1.0 billion, or $1.03 per diluted share, in 2020.

Net interest income (taxable-equivalent basis) totaled $4.0 billion in 2021 compared to $3.9 billion in 2020. The net interest margin (taxable-equivalent basis) was 2.85 percent in 2021, reflecting a 36 basis point decrease from 2020. The increase in net interest income was primarily driven by decreases in interest expense on deposits and long-term borrowings, the acquisition of EnerBank, and PPP income. These increases were partially offset by a decrease in interest income due to declines in loan balances and a continued decline in long-term interest rates. Net interest income continued to benefit from the Company's interest rate hedging strategy. The decline in net interest margin was primarily driven by continued elevated liquidity as evidenced by higher cash levels held at the Federal Reserve and the continued repricing of fixed-rate loan portfolios and the securities portfolio at lower market interest rates.

The benefit from credit losses totaled $524 million in 2021 compared to a provision for credit losses of $1.3 billion in 2020. The benefit from credit losses was lower than net charge-offs by $728 million in 2021. The significant decrease in the provision for credit losses was driven primarily by improvement in the economic outlook and strong credit performance. Refer to the "Allowance for Credit Losses" section of Management's Discussion and Analysis for further detail.

Non-interest income was $2.5 billion in 2021 compared to $2.4 billion in 2020. The increase was driven by higher service charges on deposit accounts, card and ATM fees, capital markets income, investment management and trust fee income, investment services fee income and other miscellaneous income during 2021. These increases were partially offset by lower mortgage income and decreased gain on equity investment. See Table 4 "Non-Interest Income" for further details.

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Non-interest expense was $3.7 billion in 2021 and $3.6 billion in 2020. The increase was driven by several expense categories, primarily salaries and employee benefits expense and equipment and software expense. These increases were partially offset by decreases in several categories, but primarily driven by lower branch consolidation and property and equipment charges. See Table 5 "Non-Interest Expense" for further details.

Regions' effective tax rate was 21.6 percent in 2021 compared to 16.8 percent in 2020. The effective tax rate is higher in 2021 due primarily to the impact of a consistent level of permanent income tax preferences having a proportionally lower impact on higher 2021 pre-tax income. See the "Income Taxes" section for further details.

For more information, refer to the following additional sections within this Form 10-K:

•"Operating Results" section of MD&A

•“Net Interest Income and Net Interest Margin” discussion within the “Operating Results” section of MD&A

•“Interest Rate Risk” discussion within the “Risk Management” section of MD&A

Capital

Capital Actions

Regions was not required to participate in the 2021 CCAR. However, the Company voluntarily participated in the 2021 CCAR in part to have the Federal Reserve re-evaluate Regions' SCB. Effective October 1, 2021, Regions' SCB requirement for the fourth quarter of 2021 through the third quarter of 2022 is floored at 2.5 percent.

During the third quarter of 2020, the Federal Reserve mandated that banks must not increase their quarterly per share common dividend which was subsequently extended through the second quarter of 2021. The mandate was lifted in the third quarter of 2021 and the Board approved a common stock increase from $0.155 to $0.17. On February 9, 2022, the Company declared a cash dividend for the first quarter of 2022 of $0.17 per share.

As part of the Company's capital plan, on April 21, 2021, the Board authorized the repurchase of up to $2.5 billion of the Company's common stock, permitting purchases from the second quarter of 2021 through the first quarter of 2022. In 2021 Regions repurchased approximately 20.8 million shares of common stock under this program, which reduced shareholders' equity by $467 million.

For more information, refer to the following additional sections within this Form 10-K:

•"Shareholders' Equity" discussion in MD&A

•"Regulatory Requirements" section of MD&A

•Note 14 "Shareholders' Equity and Accumulated Other Comprehensive Income (Loss)" to the consolidated financial statements

Regulatory Capital

Regions and Regions Bank are required to comply with regulatory capital requirements established by Federal and State banking agencies. Under the Basel III Rules, Regions is designated as a standardized approach bank. The Basel III Rules maintain the minimum guidelines for Regions to be considered well-capitalized for Tier 1 capital and Total capital at 6.0% and 10.0%, respectively. At December 31, 2021, Regions’ Tier 1 capital and Total capital ratios were estimated to be 11.03% and 12.74%, respectively.

The Basel III Rules also officially defined CET1. Regions' CET1 ratio at December 31, 2021 was estimated to be 9.57%.

For more information, refer to the following additional sections within this Form 10-K:

•“Supervision and Regulation” discussion within Item 1. Business

•"Regulatory Requirements" section of MD&A

•Note 12 "Regulatory Capital Requirements and Restrictions" to the consolidated financial statements

Loan Portfolio and Credit

During 2021, total loans increased by $2.5 billion or 3.0 percent compared to 2020. The increase was primarily driven by an increase in the consumer portfolio of $2.0 billion, which largely reflected loans acquired through the Company's acquisition of EnerBank, offset by continued runoff in the other consumer—exit portfolios. The commercial portfolio increased $734 million, demonstrating significant growth and overcoming a $2.9 billion decrease in PPP loans during 2021. The economy has been and will continue to be the primary factor which influences Regions’ loan portfolio. In 2021, line utilization remained below pre-pandemic levels but reached an inflection point in the second quarter of 2021 and increased by year-end. Refer to the "Portfolio Characteristics" section for further discussion.

Net charge-offs totaled $204 million, or 0.24 percent of average loans, in 2021, compared to $512 million, or 0.58 percent in 2020, reflecting decreased net charge-offs in the commercial and industrial loan and non-real estate related consumer

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portfolios. The real estate-related consumer portfolios experienced net recoveries during 2021. The allowance was 1.79 percent of total loans, net of unearned income at December 31, 2021, a decrease from 2.69 percent at December 31, 2020. The coverage ratio of allowance to non-performing loans excluding held for sale was 349 percent at December 31, 2021, compared to 308 percent at December 31, 2020.

For more information, refer to the following additional sections within this Form 10-K:

•Adjusted Average Balances of Loans within the Table 1 "GAAP to Non-GAAP Reconciliations"

•"Portfolio Characteristics" section of MD&A

•“Allowance for Credit Losses” discussion within the “Critical Accounting Policies and Estimates” section of MD&A

•“Provision for Credit Losses” discussion within the “Operating Results” section of MD&A

•“Loans,” “Allowance for Credit Losses,” “Troubled Debt Restructurings” and “Non-performing Assets” discussions within the “Balance Sheet Analysis” section of MD&A

•Note 4 "Loans" to the consolidated financial statements

•Note 5 "Allowance for Credit Losses" to the consolidated financial statements

Liquidity

At the end of 2021, Regions Bank had $28.1 billion in cash on deposit with the Federal Reserve and the loan-to-deposit ratio was 63 percent. Cash and cash equivalents at the parent company totaled $1.5 billion.

At December 31, 2021, the Company’s borrowing capacity with the Federal Reserve was $13.3 billion based on available collateral. Borrowing availability with the FHLB was $16.2 billion based on available collateral at the same date. Regions also maintains a shelf registration statement with the U.S. Securities and Exchange Commission that can be utilized by the Company to issue various debt and/or equity securities. Additionally, Regions' Board has authorized Regions Bank to issue up to $10 billion in aggregate principal amount of bank notes outstanding at any one time.

Regions is required to conduct liquidity stress testing and measure its available sources of liquidity against minimums as established by Regions' internal liquidity policy. Regions was fully compliant with those requirements as of year-end.

For more information, refer to the following additional sections within this Form 10-K:

•“Supervision and Regulation” discussion within Item 1. Business

•“Borrowings” discussion within the “Balance Sheet Analysis” section of MD&A

•“Regulatory Requirements” section of MD&A

•“Liquidity” discussion within the “Risk Management” section of MD&A

•Note 11 "Borrowed Funds" to the consolidated financial statements

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2022 Expectations

[[GREPCENT_TABLE]]
[["2022 Expectations"],["Category","","Expectation"],["Total Adjusted Revenue (1)","","Up 4-5%"],["Adjusted Non-Interest Expense","","Up 3-4%"],["Adjusted Operating Leverage","","Positive"],["Average Loans (2)","","Up 4-5%"],["Net Charge-Offs / Average Loans","","Approximately 25-35 basis points"],["Effective Tax Rate (3)","","21-23%"],["CET1","","Near the mid-point of a 9.25-9.75% operating range"]]
[[/GREPCENT_TABLE]]

______

(1) Included in the total adjusted revenue expectation is the expectation for capital markets to generate quarterly revenue in the $90 million to $110 million range, exclusive of the CVA/DVA adjustment, and expect to be near the lower end of the range in the first half of 2022 as new acquisitions are integrated and ramped-up. Also included in this expectation, the anticipated impact of newly announced non-sufficient funds and overdraft policy changes will result in 2022 service charges of approximately $600 million. Lastly, expect mortgage income to be lower in 2022, but remain a key component of fee revenue.

(2) Included in the average loan growth expectation is the expectation that the other consumer—exit portfolios will have a negative impact to average loans of approximately $700 million.

(3) Does not include the impact of potential tax legislation.

The reconciliation with respect to these forward-looking non-GAAP measures is expected to be consistent with the actual non-GAAP reconciliations within Management's Discussion and Analysis of this Form 10-K. For more information related to the Company's 2022 expectations, refer to the related sub-sections discussed in more detail within Management's Discussion and Analysis of this Form 10-K.

GENERAL

The following discussion and financial information is presented to aid in understanding Regions’ financial position and results of operations. The emphasis of this discussion will be on operations for the years 2021 and 2020; in addition, financial information for prior years will also be presented when appropriate.

Regions’ profitability, like that of many other financial institutions, is dependent on its ability to generate revenue from net interest income as well as non-interest income sources. Net interest income is primarily the difference between the interest income Regions receives on interest-earning assets, such as loans, leases, investment securities and cash balances held at the FRB, and the interest expense Regions pays on interest-bearing liabilities, principally deposits and borrowings. Regions’ net interest income is impacted by the size and mix of its balance sheet components and the interest rate spread between interest earned on its assets and interest paid on its liabilities. Non-interest income includes fees from service charges on deposit accounts, card and ATM fees, mortgage servicing and secondary marketing, investment management and trust activities, capital markets and other customer services which Regions provides. Results of operations are also affected by the provision for credit losses and non-interest expenses such as salaries and employee benefits, occupancy, professional, legal and regulatory expenses, FDIC insurance assessments, and other operating expenses, as well as income taxes.

Economic conditions, competition, new legislation and related rules impacting regulation of the financial services industry and the monetary and fiscal policies of the Federal government significantly affect most, if not all, financial institutions, including Regions. Lending and deposit activities and fee income generation are influenced by levels of business spending and investment, consumer income, consumer spending and savings, capital market activities, and competition among financial institutions, as well as customer preferences, interest rate conditions and prevailing market rates on competing products in Regions’ market areas.

Regions’ business strategy is focused on providing a competitive mix of products and services, delivering quality customer service, and continuing to develop and optimize distribution channels that include a branch distribution network with offices in convenient locations, as well as electronic and mobile banking.

Recent Acquisitions

On December 17, 2021, Regions entered into an agreement to acquire Clearsight Advisors, Inc., a leading-edge mergers and acquisitions firm headquartered in McLean, Virginia. The transaction closed on December 31, 2021.

On October 4, 2021, Regions entered into an agreement to acquire Sabal Capital Partners, LLC, a diversified financial services firm that facilitates lending in the small-balance commercial real estate market headquartered in Irvine, California. The transaction closed on December 1, 2021. Refer to the "Sabal Acquisition" section for more detail.

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On June 8, 2021, Regions entered into an agreement to acquire EnerBank, a consumer lending institution specializing in home improvement lending headquartered in Salt Lake City, Utah. The transaction closed on October 1, 2021, and resulted in the addition of approximately $3.1 billion in loans to consumers. Refer to the "EnerBank Acquisition" section for more detail.

On February 27, 2020, Regions announced that it had entered into an agreement to acquire Ascentium Capital LLC, an independent equipment financing company headquartered in Kingwood, Texas. The transaction closed on April 1, 2020, and included approximately $1.9 billion in loans and leases to small businesses. Refer to the "Ascentium Acquisition" section for more detail.

Business Segments

Regions provides traditional commercial, retail and mortgage banking services, as well as other financial services in the fields of asset management, wealth management, securities brokerage, and other specialty financing. Regions carries out its strategies and derives its profitability from three reportable segments: Corporate Bank, Consumer Bank, and Wealth Management, with the remainder in Other.

See Note 22 "Business Segment Information" to the consolidated financial statements for further information on Regions’ business segments.

NON-GAAP MEASURES

The table below presents computations of earnings and certain other financial measures, which exclude certain items that are included in the financial results presented in accordance with GAAP. These non-GAAP financial measures include “adjusted non-interest expense”, “adjusted non-interest income”, “adjusted total revenue” and “adjusted operating leverage ratio”. Regions believes that excluding certain items provides a meaningful base for period-to-period comparisons, which management believes will assist investors in analyzing the operating results of the Company and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of Regions’ business because management does not consider the activities related to the adjustments to be indications of ongoing operations. Regions believes that presentation of these non-GAAP financial measures will permit investors to assess the performance of the Company on the same basis as that applied by management. Management and the Board utilize these non-GAAP financial measures as follows:

•Preparation of Regions’ operating budgets

•Monthly financial performance reporting

•Monthly close-out reporting of consolidated results

•Presentations to investors of Company performance

•Metrics for incentive compensation

The adjusted operating leverage ratio (non-GAAP), which is a measure of productivity, is generally calculated as the year over year percentage change in adjusted total revenue on a taxable-equivalent basis less the year over year percentage change in adjusted total non-interest expense. Management uses this ratio to monitor performance and believes it provides meaningful information to investors. Non-interest income (GAAP) is presented excluding adjustments to arrive at adjusted non-interest income (non-GAAP). Net interest income on a taxable-equivalent basis and non-interest income are added together to arrive at total revenue on a taxable-equivalent basis. Adjustments are made to arrive at adjusted total revenue on a taxable-equivalent basis (non-GAAP). Non-interest expense (GAAP) is presented excluding adjustments to arrive at adjusted non-interest expense (non-GAAP).

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. In particular, a measure of earnings that excludes selected items does not represent the amount that effectively accrues directly to shareholders.

The following table provides: 1) a reconciliation of non-interest expense (GAAP) to adjusted non-interest expense (non-GAAP), 2) a reconciliation of non-interest income (GAAP) to adjusted non-interest income (non-GAAP), 3) a computation of adjusted total revenue (non-GAAP), and 4) presentation of the operating leverage ratio (GAAP) and the adjusted operating leverage ratio (non-GAAP).

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Table 1—GAAP to Non-GAAP Reconciliations

[[GREPCENT_TABLE]]
[["","","Year Ended December 31"],["","","2021","","2020","","2019"],["","","(Dollars in millions,)"],["ADJUSTED OPERATING LEVERAGE RATIOS"],["Non-interest expense (GAAP)","A","$","3,747","","","$","3,643","","","$","3,489"],["Adjustments:"],["Contribution to Regions Financial Corporation foundation","","(3)","","","(10)","","","\u2014"],["Professional, legal and regulatory expenses (1)","","(15)","","","(7)","","","\u2014"],["Branch consolidation, property and equipment charges","","(5)","","","(31)","","","(25)"],["Loss on early extinguishment of debt","","(20)","","","(22)","","","(16)"],["Salaries and employee benefits\u2014severance charges","","(6)","","","(31)","","","(5)"],["Acquisition expenses","","\u2014","","","(1)","","","\u2014"],["Adjusted non-interest expense (non-GAAP)","B","$","3,698","","","$","3,541","","","$","3,443"],["Net interest income (GAAP)","C","$","3,914","","","$","3,894","","","$","3,745"],["Taxable-equivalent adjustment (GAAP)","","44","","","48","","","53"],["Net interest income, taxable-equivalent basis (GAAP)","D","3,958","","","3,942","","","3,798"],["Non-interest income (GAAP)","E","$","2,524","","","$","2,393","","","$","2,116"],["Adjustments:"],["Securities (gains) losses, net","","(3)","","","(4)","","","28"],["Gains on equity investment (2)","","(3)","","","(50)","","","\u2014"],["Bank-owned life insurance (3)","","(18)","","","(25)","","","\u2014"],["Leveraged lease termination gains","","(2)","","","(2)","","","(1)"],["Gain on sale of affordable housing residential mortgage loans (4)","","\u2014","","","\u2014","","","(8)"],["Adjusted non-interest income (non-GAAP)","F","$","2,498","","","$","2,312","","","$","2,135"],["Total revenue (GAAP)","C+E=G","$","6,438","","","$","6,287","","","$","5,861"],["Adjusted total revenue (non-GAAP)","C+F=H","$","6,412","","","$","6,206","","","$","5,880"],["Total revenue, taxable-equivalent basis (GAAP)","D+E=I","$","6,482","","","$","6,335","","","$","5,914"],["Adjusted total revenue, taxable-equivalent basis (non-GAAP)","D+F=J","$","6,456","","","$","6,254","","","$","5,933"],["Operating leverage ratio (GAAP) (5)","","(0.55)","%","","2.71","%","","4.15","%"],["Adjusted operating leverage ratio (non-GAAP) (5)","","(1.23)","%","","2.56","%","","2.13","%"]]
[[/GREPCENT_TABLE]]

 _________

(1)Amounts are professional and legal expenses related to acquisitions.

(2)The 2021 amount is a gain on the sale of an equity investment, whereas the 2020 amount is a valuation gain on the investment that was sold in the first quarter 2021.

(3)During the second quarter of 2021, the Company recognized an individual BOLI claim benefit. During the fourth quarter of 2020, the Company recognized a gain on the exchange of BOLI policies.

(4)In the first quarter of 2019, the Company sold $167 million of affordable housing residential mortgage loans for a gain of $8 million.

(5)Amounts have been calculated using whole dollar values.

CRITICAL ACCOUNTING ESTIMATES AND RELATED POLICIES

In preparing financial information, management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses for the periods shown. The accounting principles followed by Regions and the methods of applying these principles conform with GAAP, regulatory guidance, where applicable, and general banking practices. Estimates and assumptions most significant to Regions are related primarily to the allowance for credit losses, fair value measurements, intangible assets (goodwill and other identifiable intangible assets), residential MSRs and income taxes, and are summarized in the following discussion and in the notes to the consolidated financial statements.

Allowance for Credit Losses

The allowance for credit losses (“allowance”) consists of two components: the allowance for loan losses and the reserve for unfunded credit commitments. Unfunded credit commitments include items such as letters of credit, financial guarantees and binding unfunded loan commitments. Regions determines its allowance in accordance with GAAP and applicable regulatory guidance.

On January 1, 2020, Regions adopted CECL, which replaced the incurred loss allowance methodology with an expected loss allowance methodology. See Note 1 "Summary of Significant Accounting Policies" and Note 5 "Allowance for Credit Losses" to the consolidated financial statements for information about CECL adoption, areas of judgment and methodologies used in establishing the allowance.

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The allowance is sensitive to a number of internal factors, such as modifications in the mix and level of loan balances outstanding, portfolio performance and assigned risk ratings. The allowance is also sensitive to external factors such as the general health of the economy, as evidenced by changes in interest rates, GDP, unemployment rates, changes in real estate demand and values, volatility in commodity prices, bankruptcy filings, health pandemics, government stimulus, and the effects of weather and natural disasters such as droughts, floods and hurricanes.

Management considers these variables and all other available information when establishing the final level of the allowance. These variables and others have the ability to result in actual loan losses that differ from the originally estimated amounts.

Changes in the factors used by management to determine the appropriateness of the allowance or the availability of new information could cause the allowance to be increased or decreased in future periods. In addition, bank regulatory agencies, as part of their examination process, may require changes in the level of allowance based on their judgments and estimates. Volatility in certain credit metrics is to be expected. Additionally, changes in circumstances related to individually large credits, commodity prices, or certain macroeconomic forecast assumptions may result in volatility. The scenarios discussed below, or other scenarios, have the ability to result in actual credit losses that differ, perhaps materially, from the originally estimated amounts. In addition, it is difficult to predict how changes in economic conditions, including changes resulting from various pandemic scenarios, the impact of government stimulus programs to individuals and businesses, and the timely distribution and efficacy of a vaccine could affect borrower behavior. This analysis is not intended to estimate changes in the overall allowance, which would also be influenced by the judgment management applies to the modeled loss estimates to reflect uncertainty and imprecision based on then-current circumstances and conditions.

In June 2021, the FRB released its estimated modeled credit losses for Regions based on the December 31, 2020 balance sheet. The FRB estimated credit losses in its severely adverse scenario of $5.3 billion, or 6.5 percent. See the Federal Reserve stress test disclosures at "Item 1. Business - Comprehensive Capital Analysis and Review and Stress Testing" for more information regarding their assumptions in this stress test.

It is difficult to estimate how potential changes in any one economic factor might affect the overall allowance because a wide variety of factors and inputs are considered in the allowance estimate. Changes in the factors and inputs may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. However, to consider the impact of a hypothetical alternate economic forecast, Regions estimated the allowance using a scenario that was 1 standard deviation unfavorable to the expected scenario for each macroeconomic variable. This unfavorable scenario resulted in an allowance approximately 10 percent higher than the allowance using the expected scenario.

Similar to the scenarios above, it is difficult to estimate how potential changes in credit risk factors might affect the overall allowance because of the wide variety of credit risk factors that are considered in estimating the allowance. Changes in risk ratings may not occur at the same rate and may not be consistent across product or industry types. Regions conducted a separate sensitivity analysis considering deteriorating conditions for commercial and investor real estate portfolio factors by stressing key portfolio drivers relative to the baseline portfolio conditions. Regions stressed risk ratings by one downgrade for commercial and investor real estate loans. This scenario generated an increase in the modeled allowance of approximately $148 million for the commercial and investor real estate portfolios.

Fair Value Measurements

A portion of the Company’s assets and liabilities is carried at fair value, with changes in fair value recorded either in earnings or accumulated other comprehensive income (loss). These include debt securities available for sale, mortgage loans held for sale, equity investments (with and without readily determinable market values), residential MSRs and derivative assets and liabilities. From time to time, the estimation of fair value also affects other loans held for sale, which are recorded at the lower of cost or fair value. Fair value determination is also relevant for certain other assets such as foreclosed property and other real estate, which are recorded at the lower of the recorded investment in the loan/property or fair value, less estimated costs to sell the property. For example, the fair value of other real estate is determined based on recent appraisals by third parties and other market information, less estimated selling costs. Adjustments to the appraised value are made if management becomes aware of changes in the fair value of specific properties or property types. The determination of fair value also impacts certain other assets that are periodically evaluated for impairment using fair value estimates, including goodwill and other identifiable intangible assets.

Fair value is generally defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) as opposed to the price that would be paid to acquire the asset or received to assume the liability (an entry price), in an orderly transaction between market participants at the measurement date under current market conditions. While management uses judgment when determining the price at which willing market participants would transact when there has been a significant decrease in the volume or level of activity for the asset or liability in relation to “normal” market activity, management’s objective is to determine the point within the range of fair value estimates that is most representative of a sale to a third-party

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investor under current market conditions. The value to the Company if the asset or liability were held to maturity is not included in the fair value estimates.

A fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability, including the assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Fair value is measured based on a variety of inputs the Company utilizes. Fair value may be based on quoted market prices for identical assets or liabilities traded in active markets (Level 1 valuations). If market prices are not available, quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market are used (Level 2 valuations). Where observable market data is not available, the valuation is generated from model-based techniques that use significant assumptions not observable in the market, but observable based on Company-specific data (Level 3 valuations). These unobservable assumptions reflect the Company’s own estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include option pricing models, discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability.

See Note 1 "Summary of Significant Accounting Policies" to the consolidated financial statements for a detailed discussion of determining fair value, including pricing validation processes.

Intangible Assets

Regions’ intangible assets consist primarily of the excess of cost over the fair value of net assets of acquired businesses (“goodwill”) and other identifiable intangible assets (primarily relationship assets, agency commercial real estate licenses, core deposit intangibles and purchased credit card relationships). Goodwill totaled $5.7 billion and $5.2 billion at December 31, 2021 and December 31, 2020, respectively. Goodwill is allocated to each of Regions’ reportable segments (each a reporting unit: Corporate Bank, Consumer Bank, and Wealth Management). Goodwill is tested for impairment on an annual basis as of October 1 or more often if events and circumstances indicate impairment may exist (refer to Note 1 "Summary of Significant Accounting Policies" to the consolidated financial statements for further discussion).

Accounting guidance permits the Company to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit exceeds its carrying value. If, based on the weight of the evidence, the Company determines it is more likely than not that the fair value exceeds book value, then an impairment test is not necessary. If the Company elects to bypass the qualitative assessment, or concludes that it is more likely than not that the fair value is less than the carrying value, an impairment test is performed. The estimated fair value of the reporting unit is compared to its carrying amount, including goodwill. To the extent that the estimated fair value of the reporting unit exceeds the carrying value, impairment is not indicated. Conversely, if the estimated fair value of the reporting unit is below its carrying amount, a loss (which could be material) would be recognized to reduce the carrying amount to the estimated fair value. The carrying value of equity for each reporting unit is determined from an allocation based upon risk weighted assets. Adverse changes in the economic environment, declining operations of the reporting unit, or other factors could result in a decline in the estimated implied fair value of goodwill.

The Company completed its annual goodwill impairment test as of October 1, 2021, by performing a qualitative assessment of goodwill at the reporting unit level to determine whether any indicators of impairment existed. In performing the qualitative assessment, the Company evaluated events and circumstances since the last impairment analysis, recent operating performance including reporting unit performance, changes in market capitalization, regulatory actions and assessments, changes in the business climate, company-specific factors, and trends in the banking industry. After assessing the totality of the events and circumstances, the Company determined that it is more likely than not that the fair value of the Corporate Bank, Consumer Bank, and Wealth Management reporting units exceed their respective carrying values. Therefore, a quantitative impairment test was deemed unnecessary. Refer to Note 9 "Intangible Assets" to the consolidated financial statements for additional discussion of goodwill.

Specific factors as of the date of filing the financial statements that could negatively impact the assumptions used in assessing goodwill for impairment include: a protracted decline in the Company’s market capitalization; adverse business trends resulting from litigation and/or regulatory actions; higher loan losses; forecasts of high unemployment levels; future increased minimum regulatory capital requirements above current thresholds (refer to Note 12 "Regulatory Capital Requirements and Restrictions" to the consolidated financial statements for a discussion of current minimum regulatory requirements); future federal rules and regulations (e.g., such as those resulting from the Dodd-Frank Act); and/or a significant protraction in the current level of interest rates.

Other identifiable intangible assets, relationship intangible assets, agency commercial real estate licenses, core deposit intangibles and purchased credit card relationships, are reviewed at least annually (usually in the fourth quarter) for events or circumstances which could impact the recoverability of the intangible asset. These events could include loss of customer relationships, loss of core deposits, significant losses of credit card accounts and/or balances, increased competition or adverse changes in the economy. To the extent an other identifiable intangible asset is deemed unrecoverable, an impairment loss would

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be recorded to reduce the carrying amount. These events or circumstances, if they occur, could be material to Regions’ operating results for any particular reporting period but the potential impact cannot be reasonably estimated. As of December 31, 2021, the Company’s review indicated there was no impairment in the value of the intangible assets.

Residential Mortgage Servicing Rights

Regions has elected to measure and report its residential MSRs using the fair value method. Although sales of residential MSRs do occur, residential MSRs do not trade in an active market with readily observable market prices and the exact terms and conditions of sales may not be readily available, and are therefore Level 3 valuations in the fair value hierarchy previously discussed in the "Fair Value Measurements" section. Specific characteristics of the underlying loans greatly impact the estimated value of the related residential MSRs. As a result, Regions stratifies its residential mortgage servicing portfolio on the basis of certain risk characteristics, including loan type and contractual note rate, and values its residential MSRs using discounted cash flow modeling techniques. These techniques require management to make estimates regarding future net servicing cash flows, taking into consideration historical and forecasted residential mortgage loan prepayment rates, discount rates, escrow balances and servicing costs. Changes in interest rates, prepayment speeds or other factors impact the fair value of residential MSRs which impacts earnings. The carrying value of residential MSRs was $418 million at December 31, 2021. Based on a hypothetical sensitivity analysis, Regions estimates that a reduction in benchmark interest rates of 25 basis points and 50 basis points would reduce the December 31, 2021 fair value of residential MSRs by approximately 6 percent ($24 million) and 12 percent ($52 million), respectively. Conversely, 25 basis point and 50 basis point increases in these rates would increase the December 31, 2021 fair value of residential MSRs by approximately 5 percent ($21 million) and 9 percent ($38 million), respectively. Regions also estimates that an increase in servicing costs of approximately $10 per loan, or 16 percent, would result in a decline in the value of the residential MSRs by approximately $12 million.

The pro forma fair value analyses presented above demonstrates the sensitivity of fair values to hypothetical changes in primary mortgage rates and servicing costs. This sensitivity analysis does not reflect an expected outcome. Refer to Note 6 "Servicing of Financial Assets" to the consolidated financial statements for additional disclosure on residential mortgage servicing rights.

Income Taxes

Accrued income taxes are reported as a component of either other assets or other liabilities, as appropriate, in the consolidated balance sheets and reflect management’s estimate of income taxes to be paid or received.

Deferred income taxes represent the amount of future income taxes to be paid or received and are accounted for using the asset and liability method. The net balance is reported as a component of either other assets or other liabilities, as appropriate, in the consolidated balance sheets. The Company determines the realization of deferred tax assets by considering all positive and negative evidence available, including the impact of recent operating results, future reversals of taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards and tax planning strategies. In projecting future taxable income, the Company utilizes forecasted pre-tax earnings, adjusts for the estimated book-tax differences and incorporates assumptions, including the amounts of income allocable to taxing jurisdictions. These assumptions require significant judgment and are consistent with the plans and estimates the Company uses to manage the underlying businesses. The realization of the deferred tax assets could be reduced in the future if these estimates are significantly different than forecasted. For a detailed discussion of realization of deferred tax assets, refer to the “Income Taxes” section found later in this report.

The Company is subject to income tax in the U.S. and multiple state and local jurisdictions. The tax laws and regulations in each jurisdiction may be interpreted differently in certain situations, which could result in a range of outcomes. Thus, the Company is required to exercise judgment regarding the application of these tax laws and regulations. The Company will evaluate and recognize tax liabilities related to any tax uncertainties. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is different from the current estimate of the tax liabilities.

The Company’s estimate of accrued income taxes, deferred income taxes and income tax expense can also change in any period as a result of new legislative or judicial guidance impacting tax positions, as well as changes in income tax rates. Any changes, if they occur, can be significant to the Company’s consolidated financial position, results of operations or cash flows. See Note 19 "Income Taxes" to the consolidated financial statements for further details.

OPERATING RESULTS

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income is Regions’ principal source of income and is one of the most important elements of Regions’ ability to meet its overall performance goals. Net interest income (taxable-equivalent basis) increased by $16 million in 2021 compared to 2020. The increase in net interest income was driven primarily by higher hedge-related income, lower funding costs, a larger securities portfolio, the acquisition of EnerBank and increased PPP income. While PPP loan balances declined during the year, the fees related to loan forgiveness increased as the loan forgiveness process continued throughout 2021.

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In 2021, interest rates remained near historic lows. Regions' asset yields were impacted by the low interest rate environment. In particular, the investment securities portfolio which contains significant residential fixed-rate exposure, declined in yield to 1.86 percent in 2021 from 2.34 percent in 2020. The yield decreased primarily due to reinvestment at lower yields, addition of new securities at lower yields, and higher premium amortization. The increase in premium amortization was driven by higher recognized premium from securities purchases combined with increased prepayment speeds.

The loan portfolio yield declined to 4.11 percent in 2021 from 4.15 percent in 2020. The Company's loan yields are primarily influenced by short-term interest rates such as 30-day LIBOR, which averaged 0.10 percent in 2021 compared to 0.52 percent in 2020. Notably the hedging program, which protects against lower short-term rates, contributed interest income of $426 million for all of 2021 compared to $260 million in 2020. This equates to a benefit of 0.50 percent to loan yields in 2021 compared to 0.30 percent in 2020. Additionally, continued reinvestment of fixed-rate loans at lower long-term interest rates throughout 2021 contributed to the yield decrease.

The Company's funding costs also declined in 2021 to 0.12 percent as compared to 0.31 percent in 2020. Deposit costs decreased to 5 basis points for 2021 compared to 16 basis points for 2020 due primarily to continued lower interest rates and active deposit cost management, coupled with a higher non-interest-bearing balance mix. The average long-term borrowing balance of $2.8 billion in 2021 was lower than 2020 due to the redemption of Parent and Bank senior notes, as well as early termination of FHLB secured funding sources. While the interest expense declined, the rate on these borrowings increased 96 basis points, primarily attributable to the remixing out of lower-cost FHLB funding. See the "Borrowed Funds" section and Note 11 "Borrowed Funds" to the consolidated financial statements for additional information.

Net interest margin decreased to 2.85 percent in 2021 from 3.21 percent in 2020. The decline was primarily driven by continued elevated liquidity in higher cash levels. Cash reduced net interest margin by 54 basis points in 2021 compared to 18 basis points in 2020.

See also the "Market Risk-Interest Rate Risk" section in Management's Discussion and Analysis for additional information.

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Table 2 "Consolidated Average Daily Balances and Yield/Rate Analysis" presents a detail of net interest income (on a taxable-equivalent basis), the net interest margin, and the net interest spread.

Table 2—Consolidated Average Daily Balances and Yield/Rate Analysis

[[GREPCENT_TABLE]]
[["","Year Ended December 31"],["","2021","","2020","","2019"],["","Average Balance","","Income/ Expense","","Yield/Rate(1)","","Average Balance","","Income/ Expense","","Yield/Rate(1)","","Average Balance","","Income/ Expense","","Yield/Rate(1)"],["","(Dollars in millions; yields on taxable-equivalent basis)"],["Assets"],["Earning assets:"],["Federal funds sold and securities purchased under agreements to resell","$","3","","","$","\u2014","","","0.14","%","","$","\u2014","","","$","\u2014","","","\u2014","%","","$","\u2014","","","$","\u2014","","","\u2014","%"],["Debt securities (2)","28,604","","","533","","","1.86","","","24,837","","","582","","","2.34","","","24,274","","","643","","","2.65"],["Loans held for sale","1,219","","","37","","","3.06","","","932","","","28","","","2.95","","","450","","","17","","","3.75"],["Loans, net of unearned income (3)(4)","84,802","","","3,496","","","4.11","","","87,813","","","3,658","","","4.15","","","83,248","","","3,919","","","4.69"],["Interest-bearing deposits in other banks","22,810","","","30","","","0.13","","","7,688","","","9","","","0.13","","","666","","","16","","","2.41"],["Other earning assets(5)","1,289","","","29","","","2.23","","","1,382","","","33","","","2.37","","","1,536","","","54","","","3.49"],["Total earning assets","138,727","","","4,125","","","2.97","","","122,652","","","4,310","","","3.50","","","110,174","","","4,649","","","4.21"],["Unrealized gains/(losses) on securities available for sale, net (2)","623","","","","","","","935","","","","","","","(5)"],["Allowance for loan losses","(1,795)","","","","","","","(1,944)","","","","","","","(857)"],["Cash and due from banks","2,027","","","","","","","2,047","","","","","","","1,895"],["Other non-earning assets","14,687","","","","","","","14,405","","","","","","","13,903"],["","$","154,269","","","","","","","$","138,095","","","","","","","$","125,110"],["Liabilities and Shareholders\u2019 Equity"],["Interest-bearing liabilities:"],["Savings","$","13,867","","","19","","","0.13","","","$","10,325","","","14","","","0.14","","","$","8,719","","","14","","","0.16"],["Interest-bearing checking","25,128","","","8","","","0.03","","","21,522","","","35","","","0.16","","","18,772","","","125","","","0.67"],["Money market","30,615","","","8","","","0.03","","","27,877","","","51","","","0.18","","","24,637","","","167","","","0.68"],["Time deposits","5,253","","","29","","","0.56","","","6,432","","","76","","","1.18","","","7,632","","","123","","","1.61"],["Other deposits","2","","","\u2014","","","1.20","","","252","","","4","","","1.58","","","784","","","18","","","2.26"],["Total interest-bearing deposits (6)","74,865","","","64","","","0.09","","","66,408","","","180","","","0.27","","","60,544","","","447","","","0.74"],["Federal funds purchased and securities sold under agreements to repurchase","12","","","\u2014","","","0.19","","","46","","","1","","","1.18","","","227","","","5","","","2.28"],["Other short-term borrowings","\u2014","","","\u2014","","","\u2014","","","797","","","9","","","1.13","","","2,014","","","48","","","2.35"],["Long-term borrowings","2,823","","","103","","","3.63","","","6,601","","","178","","","2.67","","","10,126","","","351","","","3.43"],["Total interest-bearing liabilities","77,700","","","167","","","0.21","","","73,852","","","368","","","0.50","","","72,911","","","851","","","1.17"],["Non-interest-bearing deposits(5)","55,838","","","\u2014","","","\u2014","","","44,386","","","\u2014","","","\u2014","","","33,869","","","\u2014","","","\u2014"],["Total funding sources","133,538","","","167","","","0.12","","","118,238","","","368","","","0.31","","","106,780","","","851","","","0.79"],["Net interest spread (2)","","","","","2.75","","","","","","","3.00","","","","","","","3.04"],["Other liabilities","2,525","","","","","","","2,469","","","","","","","2,245"],["Shareholders\u2019 equity","18,201","","","","","","","17,382","","","","","","","16,082"],["Noncontrolling Interest","5","","","","","","","6","","","","","","","3"],["","$","154,269","","","","","","","$","138,095","","","","","","","$","125,110"],["Net interest income/margin on a taxable-equivalent basis (7)","","","$","3,958","","","2.85","%","","","","$","3,942","","","3.21","%","","","","$","3,798","","","3.45","%"]]
[[/GREPCENT_TABLE]]

_______

(1)Amounts have been calculated using whole dollar values.

(2)Debt securities are included on an amortized cost basis with yield and net interest margin calculated accordingly.

(3)Loans, net of unearned income include non-accrual loans for all periods presented.

(4)Interest income includes net loan fees of $152 million, $75 million and $7 million for the years ended December 31, 2021, 2020 and 2019, respectively.

(5)Due to the impact of interest-bearing deposits in other banks on the balance sheet in 2021, other earning assets and interest-bearing deposits in other banks for prior periods have been revised to reflect the 2021 presentation.

(6)Total deposit costs may be calculated by dividing total interest expense on deposits by the sum of interest-bearing deposits and non-interest-bearing deposits. The rates for total deposit costs equal 0.05%, 0.16% and 0.47% for the years ended December 31, 2021, 2020 and 2019, respectively.

(7)The computation of taxable-equivalent net interest income is based on the statutory federal income tax rate of 21%, adjusted for applicable state income taxes net of the related federal tax benefit.

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Table 3 "Volume and Yield/Rate Variances" provides additional information with which to analyze the changes in net interest income.

Table 3— Volume and Yield/Rate Variances

[[GREPCENT_TABLE]]
[["","2021 Compared to 2020","","2020 Compared to 2019"],["","Change Due to","","Change Due to"],["","Volume","","Yield/ Rate","","Net","","Volume","","Yield/ Rate","","Net"],["","(Taxable-equivalent basis\u2014in millions)"],["Interest income on:"],["Debt securities","$","80","","","$","(129)","","","$","(49)","","","$","15","","","$","(76)","","","$","(61)"],["Loans held for sale","8","","","1","","","9","","","15","","","(4)","","","11"],["Loans, including fees","(126)","","","(36)","","","(162)","","","206","","","(467)","","","(261)"],["Interest-bearing deposits in other banks","21","","","\u2014","","","21","","","21","","","(28)","","","(7)"],["Other earning assets","(2)","","","(2)","","","(4)","","","(5)","","","(16)","","","(21)"],["Total earning assets","(19)","","","(166)","","","(185)","","","252","","","(591)","","","(339)"],["Interest expense on:"],["Savings","5","","","\u2014","","","5","","","2","","","(2)","","","\u2014"],["Interest-bearing checking","5","","","(32)","","","(27)","","","16","","","(106)","","","(90)"],["Money market","4","","","(47)","","","(43)","","","19","","","(135)","","","(116)"],["Time deposits","(12)","","","(35)","","","(47)","","","(17)","","","(30)","","","(47)"],["Other deposits","(3)","","","(1)","","","(4)","","","(10)","","","(4)","","","(14)"],["Total interest-bearing deposits","(1)","","","(115)","","","(116)","","","10","","","(277)","","","(267)"],["Federal funds purchased and securities sold under agreements to repurchase","\u2014","","","(1)","","","(1)","","","(2)","","","(2)","","","(4)"],["Other short-term borrowings","(11)","","","2","","","(9)","","","(21)","","","(18)","","","(39)"],["Long-term borrowings","(124)","","","49","","","(75)","","","(106)","","","(67)","","","(173)"],["Total interest-bearing liabilities","(136)","","","(65)","","","(201)","","","(119)","","","(364)","","","(483)"],["Increase (decrease) in net interest income","$","117","","","$","(101)","","","$","16","","","$","371","","","$","(227)","","","$","144"]]
[[/GREPCENT_TABLE]]

______

Notes:

•The change in interest not due solely to volume or yield/rate has been allocated to the volume column and yield/rate column in proportion to the relationship of the absolute dollar amounts of the change in each.

•The computation of taxable-equivalent net interest income is based on the statutory federal income tax rate of 21%, adjusted for applicable state income taxes net of the related federal tax benefit.

The mix of earning assets can affect the interest rate spread. Regions’ primary types of earning assets are loans and investment securities. Certain types of earning assets have historically generated larger spreads; for example, loans typically generate larger spreads than other assets, such as securities, Federal funds sold or securities purchased under agreements to resell. Average earning assets in 2021 totaled $138.7 billion, an increase of $16.1 billion as compared to the prior year, primarily due to increases in interest-bearing deposits in other banks. See the "Cash and Cash Equivalents" and "Loans" sections for further details.

Average loans as a percentage of average earning assets were 61 percent and 72 percent in 2021 and 2020, respectively. The remaining categories of earning assets are shown in Table 2 "Consolidated Average Daily Balances and Yield/Rate Analysis". The proportion of average earning assets to average total assets, which was 90 percent in 2021 and 89 percent in 2020, measures the effectiveness of management’s efforts to invest available funds into the most profitable earning vehicles. Funding for Regions’ earning assets comes from interest-bearing and non-interest-bearing sources. Another significant factor affecting the net interest margin is the percentage of earning assets funded by interest-bearing liabilities. The percentage of average earning assets funded by average interest-bearing liabilities was 56 percent in 2021 and 60 percent in 2020.

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PROVISION FOR (BENEFIT FROM) CREDIT LOSSES

The provision for (benefit from) credit losses is used to maintain the allowance for loan losses and the reserve for unfunded credit losses at a level that in management's judgment is appropriate to absorb expected credit losses over the contractual life of the loan and credit commitment portfolio at the balance sheet date. During 2021, the benefit from credit losses totaled $524 million and net charge-offs were $204 million. This compares to a provision for credit losses of $1.3 billion and net charge-offs of $512 million in 2020.

For further discussion and analysis of the total allowance for credit losses, see the "Allowance for Credit Losses" and “Risk Management” sections found later in this report. See also Note 5 "Allowance for Credit Losses" to the consolidated financial statements.

NON-INTEREST INCOME

Table 4—Non-Interest Income

[[GREPCENT_TABLE]]
[["","Year Ended December 31","","Change 2021 vs. 2020"],["","2021","","2020","","2019","","Amount","","Percent"],["","(Dollars in millions)"],["Service charges on deposit accounts","$","648","","","$","621","","","$","729","","","$","27","","","4.3","%"],["Card and ATM fees","499","","","438","","","455","","","61","","","13.9","%"],["Capital markets income","331","","","275","","","178","","","56","","","20.4","%"],["Investment management and trust fee income","278","","","253","","","243","","","25","","","9.9","%"],["Mortgage income","242","","","333","","","163","","","(91)","","","(27.3)","%"],["Investment services fee income","104","","","84","","","79","","","20","","","23.8","%"],["Commercial credit fee income","91","","","77","","","73","","","14","","","18.2","%"],["Bank-owned life insurance","82","","","95","","","78","","","(13)","","","(13.7)","%"],["Market valuation adjustments on employee benefit assets- other","20","","","12","","","11","","","8","","","66.7","%"],["Gain on equity investment(1)","3","","","50","","","\u2014","","","(47)","","","(94.0)","%"],["Securities gains (losses), net","3","","","4","","","(28)","","","(1)","","","(25.0)","%"],["Market valuation adjustments on employee benefit assets- defined benefit","\u2014","","","\u2014","","","5","","","\u2014","","","NM"],["Other miscellaneous income","223","","","151","","","130","","","72","","","47.7","%"],["","$","2,524","","","$","2,393","","","$","2,116","","","$","131","","","5.5","%"]]
[[/GREPCENT_TABLE]]
_______

NM - Not Meaningful

(1) The 2021 amount is a gain on the sale of an equity investment, whereas the 2020 amount is a valuation gain on the investment that was sold in the first quarter 2021.

Service Charges on Deposit Accounts

Service charges on deposit accounts include non-sufficient fund and overdraft fees, corporate analysis service charges, overdraft protection fees and other customer transaction-related service charges. The increase in 2021 compared to 2020 was the result of elevated spending in 2021 as the pace of economic activity accelerated through the year. While service charges revenue improved, changes to customer spending behaviors as a result of the pandemic, combined with future changes to overdraft and non-sufficient funds policies, are expected to keep service charges below pre-pandemic levels. See the "Executive Overview" section for details on expectations for service charges income in 2022.

Card and ATM Fees

Card and ATM fees include the combined amounts of credit card/bank card income and debit card and ATM related revenue. The increase in 2021 compared to 2020 was primarily driven by increased debit card spending and transaction volume.

Capital Markets Income

Capital markets income primarily relates to capital raising activities that includes securities underwriting and placement, loan syndication, as well as foreign exchange, derivatives, M&A and other advisory services. The increase in 2021 compared to 2020 was primarily due to increases in revenue derived from loan syndications, securities underwriting and placement, M&A advisory services, and fees generated from the placement of permanent financing for real estate. See the "Executive Overview" section for details on expectations of capital markets income in 2022.

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Investment Management and Trust Fee Income

Investment management and trust fee income represents income from asset management services provided to individuals, businesses and institutions. The increase in 2021 compared to 2020 was due to favorable market conditions and an increase in sales.

Mortgage Income

Mortgage income is generated through the origination and servicing of residential mortgage loans for long-term investors and sales of residential mortgage loans in the secondary market. The decrease in mortgage income in 2021 compared to 2020 was due to a decline in loan refinance production and sales income from the record levels experienced in 2020. Losses on mortgage servicing rights and related economic hedges also contributed to the decline. See Note 6 "Servicing of Financial Assets" to the consolidated financial statements for more information.

Investment Services Fee Income

Investment services fee income represents income earned from investment advisory services. Investment services fee income increased during 2021 compared to 2020 due primarily to stronger financial advisor production and favorable market conditions.

Commercial Credit Fee Income

Commercial credit fee income includes letters of credit fees and unused commercial commitment fees. Commercial credit fee income increased during 2021 compared 2020 primarily due to an increase in fees on unused commercial lines of credit. While line utilization at year-end had risen from the inflection point reached in the second quarter of 2021, overall line utilization remained below pre-pandemic levels.

Bank-owned Life Insurance

Bank-owned life insurance income primarily represents income earned from the appreciation of the cash surrender value of insurance contracts held and the proceeds of insurance benefits. Bank-owned life insurance decreased in 2021 compared to 2020 due to a continued decline in crediting rates, as well as a gain associated with a policy exchange completed during the fourth quarter of 2020, which did not repeat in 2021. An individual BOLI claim benefit recognized in 2021 partially offset the year-over-year decrease.

Securities Gains (Losses), net

Net securities gains (losses) primarily result from the Company's asset/liability management process. See Table 6 "Debt Securities" section and Note 3 "Debt Securities" to the consolidated financial statements for more information.

Market Value Adjustments on Employee Benefit Assets

Market value adjustments on employee benefit assets, both defined benefit and other, are the reflection of market value variations related to assets held for certain employee benefits. The adjustments are offset in salaries and benefits.

Other Miscellaneous Income

Other miscellaneous income includes net revenue from affordable housing, income from SBIC investments, valuation adjustments to equity investments (other than the item listed separately in Table 4 above), commercial loan and leasing related income, fees from safe deposit boxes, check fees and other miscellaneous income. Net revenue from affordable housing includes actual gains and losses resulting from the sale of affordable housing investments, cash distributions from the investments and any related impairment charges. Other miscellaneous income increased in 2021 compared to 2020 primarily due to increases in commercial loan and leasing related income generated from the 2020 acquisition of Ascentium, SBIC income and increases in the values of certain other equity investments.

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NON-INTEREST EXPENSE

Table 5—Non-Interest Expense

[[GREPCENT_TABLE]]
[["","Year Ended December 31","","Change 2021 vs. 2020"],["","2021","","2020","","2019","","Amount","","Percent"],["","(Dollars in millions)"],["Salaries and employee benefits","$","2,205","","","$","2,100","","","$","1,916","","","$","105","","","5.0","%"],["Equipment and software expense","365","","","348","","","325","","","17","","","4.9","%"],["Net occupancy expense","303","","","313","","","321","","","(10)","","","(3.2)","%"],["Outside services","156","","","170","","","189","","","(14)","","","(8.2)","%"],["Marketing","106","","","94","","","97","","","12","","","12.8","%"],["Professional, legal and regulatory expenses","98","","","89","","","95","","","9","","","10.1","%"],["Credit/checkcard expenses","62","","","50","","","68","","","12","","","24.0","%"],["FDIC insurance assessments","45","","","48","","","48","","","(3)","","","(6.3)","%"],["Visa class B shares expense","22","","","24","","","14","","","(2)","","","(8.3)","%"],["Loss on early extinguishment of debt","20","","","22","","","16","","","(2)","","","(9.1)","%"],["Branch consolidation, property and equipment charges","5","","","31","","","25","","","(26)","","","(83.9)","%"],["Provision (credit) for unfunded credit losses(1)","\u2014","","","\u2014","","","(6)","","","\u2014","","","NM"],["Other miscellaneous expenses","360","","","354","","","381","","","6","","","1.7","%"],["","$","3,747","","","$","3,643","","","$","3,489","","","$","104","","","2.9","%"]]
[[/GREPCENT_TABLE]]

_______

(1)Upon adoption of CECL on January 1, 2020, the provision for credit losses presented within net interest income after provision for credit losses is the sum of the provision for loan losses and the provision for unfunded credit commitments. Prior to the adoption of CECL, the provision for unfunded commitments was included in other non-interest expense.

Salaries and Employee Benefits

Salaries and employee benefits consist of salaries, incentive compensation, long-term incentives, payroll taxes, and other employee benefits such as 401(k), pension, and medical, life and disability insurance, as well as, expenses from liabilities held for employee benefit purposes. Salaries and employee benefits increased during 2021 compared to 2020 primarily due to higher variable-based and incentive compensation associated with elevated fee income and better than expected credit performance. Also contributing to the increase for 2021 was an increase in 401(k) and other benefits expenses as a result of positive market valuation adjustments. Full-time equivalent headcount increased to 19,626 at December 31, 2021 from 19,406 at December 31, 2020, reflecting additions of approximately 620 associates from acquisitions in the fourth quarter of 2021 which were offset by declines in headcount throughout 2021 as a result of the continuing impact of the Company's efficiency initiatives implemented as part of its strategic priorities.

Outside Services

Outside services consists of expenses related to routine services provided by third parties, such as contract labor, servicing costs, data processing, loan pricing and research, data license purchases, data subscriptions, and check printing. Outside services decreased in 2021 compared to 2020 primarily due to Regions exiting a third party lending relationship.

Marketing

Marketing consists of advertising, market research, and public relations expenses. Marketing increased in 2021 compared to 2020 primarily due to costs incurred for advertising.

Professional, Legal and Regulatory Expenses

Professional legal and regulatory expenses consist of amounts related to legal, consulting, other professional fees and regulatory charges. Professional, legal and regulatory expenses increased in 2021 compared to 2020 primarily due to professional fees incurred related to the acquisitions in the fourth quarter of 2021.

Credit/Checkcard Expenses

Credit/checkcard expenses include credit and checkcard fraud and expenses. Credit/checkcard expenses increased in 2021 compared to 2020 primarily due to an increase in debit card fraud.

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Loss on Early Extinguishment of Debt

In both 2020 and 2021, Regions redeemed or terminated early certain outstanding borrowings and incurred pre-tax charges associated with these transactions. See Note 11 "Borrowed Funds" to the consolidated financial statements for additional information.

Branch Consolidation, Property and Equipment Charges

Branch consolidation, property and equipment charges include valuation adjustments related to owned branches when the decision to close them is made. Accelerated depreciation and lease write-off charges are recorded for leased branches through and at the actual branch close date. Branch consolidation, property and equipment charges also include costs related to occupancy optimization initiatives.

Other Miscellaneous Expenses

Other miscellaneous expenses include expenses related to communications, postage, supplies, certain credit-related costs, foreclosed property expenses, mortgage repurchase costs, operational losses and other costs (benefits) related to employee benefit plans.

INCOME TAXES

The Company’s income tax expense for the year ended 2021 was $694 million compared to income tax expense of $220 million for the same period in 2020, resulting in effective tax rates of 21.6% percent and 16.8% percent, respectively. The effective tax rate is higher in 2021 due primarily to a consistent level of permanent income tax preferences having a proportionally lower impact on higher 2021 pre-tax income.

The effective tax rate is affected by many factors including, but not limited to, the level of pre-tax income, the mix of income between various tax jurisdictions with differing tax rates, enacted tax legislation, net tax benefits related to affordable housing investments, bank-owned life insurance income, tax-exempt interest and nondeductible expenses. In addition, the effective tax rate is affected by items that may occur in any given period but are not consistent from period-to-period, such as the termination of certain leveraged leases, share-based payments, valuation allowance changes and changes to unrecognized tax benefits. Accordingly, the comparability of the effective tax rate between periods may be impacted.

At December 31, 2021, the Company reported a net deferred tax liability of $306 million compared to a net deferred liability of $505 million at December 31, 2020. The decrease in the net deferred tax liability was due principally to the decrease in unrealized gains in available for sale securities and derivative instruments, which was partially offset by a decrease in the deferred tax asset related to the allowance.

The Company continually assesses the realizability of its deferred tax assets based on an evaluative process that considers all available positive and negative evidence. A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized. In determining whether a valuation allowance is necessary, Regions considers the level of taxable income in prior years to the extent that carrybacks are permitted under current tax laws, as well as estimates of future pre-tax and taxable income and tax planning strategies that would, if necessary, be implemented.

Based on this evaluative process, the Company established a valuation allowance in the amount of $29 million at December 31, 2021 and $31 million at December 31, 2020 because the Company believes that a portion of state net operating loss carryforwards will not be utilized. Since Regions expects to realize the remaining federal and state deferred tax assets, no valuation allowance was deemed necessary against these deferred tax assets at December 31, 2021. See Note 1 "Summary of Significant Accounting Policies" and Note 19 "Income Taxes" to the consolidated financial statements for additional information about income taxes.

BALANCE SHEET ANALYSIS

The following sections provide expanded discussion of significant changes in certain line items in asset, liability, and shareholders' equity categories.

Cash and Cash Equivalents

At December 31, 2021, cash and cash equivalents totaled $29.4 billion compared to $18.0 billion at December 31, 2020. The increase was due primarily to an increase in cash on deposit with the FRB. Significant deposit growth was primarily driven by pandemic-related deposit inflows resulting in higher consumer account balances, and new account growth during 2021 contributed to elevated liquidity sources for the Company. Regions deployed some excess liquidity as opportunities existed given market interest rates, primarily through securities purchases and long-term borrowing extinguishment activities. See the "Borrowed Funds" and "Securities" sections for further details. The remaining excess liquidity is held at the FRB. See the "Liquidity" and "Deposits" sections for more information.

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Debt Securities

Debt securities available for sale, which constitute the majority of the securities portfolio, are an important tool used to manage interest rate sensitivity and provide a primary source of liquidity for the Company. Regions maintains a highly rated securities portfolio consisting primarily of agency mortgage-backed securities. Regions’ investment policy emphasizes credit quality and liquidity. Debt securities rated in the highest category by nationally recognized rating agencies and debt securities backed by the U.S. Government and government sponsored agencies, both on a direct and indirect basis, represented approximately 95 percent of the investment portfolio at December 31, 2021. All other debt securities rated below AAA, not backed by the U.S. Government or government sponsored agencies, or which are not rated represented approximately 5 percent of total debt securities at December 31, 2021. The “Market Risk-Interest Rate Risk” and "Liquidity Risk" sections, found later in this report, further explain Regions’ interest rate and liquidity risk management practices.

The average life of the debt securities portfolio at December 31, 2021 was estimated to be 4.93 years, with a duration of approximately 4.25 years. These metrics compare with an estimated average life of 4.59 years, with a duration of approximately 4.0 years for the portfolio at December 31, 2020.

The increase in debt securities from year-end 2020 was primarily the result of the purchase of approximately $2.0 billion in U.S treasury securities, mortgage-backed securities and corporate and other debt securities during the second quarter of 2021, which was partially offset by decreases in market valuation driven by changes in interest rates.

See Note 3 "Debt Securities" to the consolidated financial statements for additional information.

Table 6 "Debt Securities" details the carrying values of debt securities, including both available for sale and held to maturity.

Table 6—Debt Securities

[[GREPCENT_TABLE]]
[["","2021","","2020"],["","(In millions)"],["U.S. Treasury securities","$","1,132","","","$","183"],["Federal agency securities","92","","","105"],["Obligations of states and political subdivisions","4","","","\u2014"],["Mortgage-backed securities:"],["Residential agency","19,319","","","19,611"],["Residential non-agency","1","","","1"],["Commercial agency","6,915","","","6,586"],["Commercial non-agency","536","","","586"],["Corporate and other debt securities","1,381","","","1,204"],["","$","29,380","","","$","28,276"]]
[[/GREPCENT_TABLE]]

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Table 7 "Relative Contractual Maturities" details the contractual maturities of debt securities, including held to maturity and available for sale, and the related weighted-average yields.

Table 7— Relative Contractual Maturities

[[GREPCENT_TABLE]]
[["","Debt Securities Maturing as of December 31, 2021"],["","Within One Year","","After One But Within Five Years","","After Five But Within Ten Years","","After Ten Years","","Total"],["","(Dollars in millions)"],["U.S. Treasury securities","$","104","","","$","320","","","$","700","","","$","8","","","$","1,132"],["Federal agency securities","7","","","\u2014","","","\u2014","","","85","","","92"],["Obligations of states and political subdivisions","\u2014","","","\u2014","","","\u2014","","","4","","","4"],["Mortgage-backed securities:"],["Residential agency","\u2014","","","135","","","962","","","18,222","","","19,319"],["Residential non-agency","\u2014","","","\u2014","","","1","","","\u2014","","","1"],["Commercial agency","74","","","2,119","","","4,085","","","637","","","6,915"],["Commercial non-agency","\u2014","","","\u2014","","","\u2014","","","536","","","536"],["Corporate and other debt securities","217","","","984","","","160","","","20","","","1,381"],["","$","402","","","$","3,558","","","$","5,908","","","$","19,512","","","$","29,380"],["Weighted-average yield (1)","2.28","%","","2.18","%","","2.00","%","","1.88","%","","1.95","%"]]
[[/GREPCENT_TABLE]]

_________

(1)The weighted-average yields are calculated on the basis of the yield to maturity based on the carrying value of each debt security. The yields presented in Table 2 are calculated based on the amortized cost of each debt security and yields earned throughout each year. Yields are calculated based on whole dollar amounts.

Loans Held For Sale

At December 31, 2021, loans held for sale totaled $1.0 billion, consisting of $680 million of residential real estate mortgage loans, $257 million of commercial loans, $53 million of consumer and other performing loans, and $13 million of non-performing loans. At December 31, 2020, loans held for sale totaled $1.9 billion, consisting of $1.4 billion of residential real estate mortgage loans, $460 million of commercial mortgage and other loans, and $6 million of non-performing loans. In the fourth quarter of 2020, Regions made the decision to sell a certain portfolio of $239 million commercial and industrial loans, which were reclassified to held for sale as of December 31, 2020. On June 1, 2021, Regions made the decision not to sell the respective loans, therefore the remaining balance of approximately $193 million was reclassified back into the held for investment portfolio. The levels of residential real estate and commercial mortgage loans held for sale that are part of the Company's mortgage originations to be sold fluctuate depending on the timing of origination and sale to third parties.

Loans

GENERAL

Loans, net of unearned income, represented 60 percent of interest-earning assets as of December 31, 2021, compared to 64 percent as of December 31, 2020. Lending at Regions is generally organized along three portfolio segments: commercial loans (including commercial and industrial, and owner-occupied commercial real estate mortgage and construction loans), investor real estate loans (commercial real estate mortgage and construction loans) and consumer loans (residential first mortgage, home equity lines and loans, consumer credit card, other consumer—exit portfolios, and other consumer loans).

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Table 8 illustrates a year-over-year comparison of loans, net of unearned income, by portfolio segment and class as of December 31, 2021 and 2020 and Table 9 provides information on selected loan maturities as of December 31, 2021:

Table 8—Loan Portfolio

[[GREPCENT_TABLE]]
[["","2021","","2020"],["","(In millions, net of unearned income)"],["Commercial and industrial","$","43,758","","","$","42,870"],["Commercial real estate mortgage\u2014owner-occupied","5,287","","","5,405"],["Commercial real estate construction\u2014owner-occupied","264","","","300"],["Total commercial","49,309","","","48,575"],["Commercial investor real estate mortgage","5,441","","","5,394"],["Commercial investor real estate construction","1,586","","","1,869"],["Total investor real estate","7,027","","","7,263"],["Residential first mortgage","17,512","","","16,575"],["Home equity lines","3,744","","","4,539"],["Home equity loans","2,510","","","2,713"],["Consumer credit card","1,184","","","1,213"],["Other consumer\u2014exit portfolios","1,071","","","2,035"],["Other consumer","5,427","","","2,353"],["Total consumer","31,448","","","29,428"],["","$","87,784","","","$","85,266"]]
[[/GREPCENT_TABLE]]

Table 9— Loan Maturities

[[GREPCENT_TABLE]]
[["","Loans Maturing as of December 31, 2021"],["","Within One Year","","After One But Within Five Years","","After Five But Within 15 Years","","After 15 Years","","Total"],["","(In millions)"],["Commercial and industrial","$","6,439","","","$","29,187","","","$","6,900","","","$","1,232","","","$","43,758"],["Commercial real estate mortgage\u2014owner-occupied","353","","","1,825","","","2,937","","","172","","","5,287"],["Commercial real estate construction\u2014owner-occupied","14","","","63","","","152","","","35","","","264"],["Total commercial","6,806","","","31,075","","","9,989","","","1,439","","","49,309"],["Commercial investor real estate mortgage","1,974","","","3,262","","","205","","","\u2014","","","5,441"],["Commercial investor real estate construction","276","","","1,308","","","2","","","\u2014","","","1,586"],["Total investor real estate","2,250","","","4,570","","","207","","","\u2014","","","7,027"],["Residential first mortgage","8","","","172","","","3,613","","","13,719","","","17,512"],["Home equity lines","126","","","1,110","","","2,503","","","5","","","3,744"],["Home equity loans","13","","","176","","","2,063","","","258","","","2,510"],["Consumer credit card","1,184","","","\u2014","","","\u2014","","","\u2014","","","1,184"],["Other consumer\u2014exit portfolios","44","","","599","","","428","","","\u2014","","","1,071"],["Other consumer","212","","","2,155","","","1,596","","","1,464","","","5,427"],["Total consumer","1,587","","","4,212","","","10,203","","","15,446","","","31,448"],["","$","10,643","","","$","39,857","","","$","20,399","","","$","16,885","","","$","87,784"]]
[[/GREPCENT_TABLE]]

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Table 10- Loan Distribution by Rate Type

The following table shows the distribution of those loans with maturities greater than one year between predetermined and variable interest rate loans as of December 31, 2021:

[[GREPCENT_TABLE]]
[["","Predetermined Rate","","VariableRate (1)"],["","(In millions)"],["Commercial and industrial","$","12,472","","","$","24,847"],["Commercial real estate mortgage\u2014owner-occupied","2,935","","","1,999"],["Commercial real estate construction\u2014owner-occupied","168","","","82"],["Total commercial","15,575","","","26,928"],["Commercial investor real estate mortgage","262","","","3,205"],["Commercial investor real estate construction","4","","","1,306"],["Total investor real estate","266","","","4,511"],["Residential first mortgage","15,758","","","1,746"],["Home equity lines","\u2014","","","3,618"],["Home equity loans","2,497","","","\u2014"],["Other consumer\u2014exit portfolios","1,027","","","\u2014"],["Other consumer","4,990","","","225"],["Total consumer","24,272","","","5,589"],["","$","40,113","","","$","37,028"]]
[[/GREPCENT_TABLE]]

_________

(1)The lending reported in variable rate disclosure is based upon the rate in the underlying lending agreements. For some lending arrangements, Regions enters into interest rate swap and floor agreements to manage overall cash flow changes related to interest rate risk exposure on variable rate loans. The agreements effectively modify the Company’s exposure to interest rate risk by utilizing receive fixed/pay variable interest rate swaps and interest rate floors. The impact of hedging is not considered within this disclosure.

Loans, net of unearned income, totaled $87.8 billion at December 31, 2021, an increase of $2.5 billion from year-end 2020 levels. Regions manages loan growth with a focus on risk management and risk-adjusted return on capital. Loan balances increased year over year in the commercial and consumer portfolio segments but declined within the investor real estate portfolio segment. Within the consumer portfolio segment, the year over year balance increase is primarily attributable to $3.1 billion in loans associated with the acquisition of EnerBank. See the "Executive Overview" section for details on expectations of average loan growth in 2022.

PORTFOLIO CHARACTERISTICS

The following sections describe the composition of the portfolio segments and classes disclosed in Table 8, explain changes in balances from the 2020 year-end, and highlight the related risk characteristics. Regions believes that its loan portfolio is well diversified by product, client, and geography throughout its footprint. However, the loan portfolio may be exposed to certain concentrations of credit risk which exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, certain loan products, or certain regions of the country. See Note 4 "Loans" and Note 5 "Allowance for Credit Losses" to the consolidated financial statements for additional discussion.

Commercial

The commercial portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases and other expansion projects. Commercial and industrial loans increased $888 million or 2 percent since year-end 2020. The December 31, 2021 balance includes $748 million of PPP loans, a decrease of $2.9 billion compared to year-end 2020. While line utilization levels remain well below pre-pandemic levels, utilization levels slightly increased by the end of the year compared to the inflection point reached in the second quarter of 2021. Excluding PPP lending balances, commercial loan balances increased since year-end 2020 driven by growth in financial services, wholesale goods, utilities, and transportation and warehousing.

Commercial also includes owner-occupied commercial real estate mortgage loans to operating businesses, which are loans for long-term financing on land and buildings, and are repaid by cash generated by business operations. Owner-occupied commercial real estate construction loans are made to commercial businesses for the development of land or construction of a building where the repayment is derived from revenues generated from the business of the borrower.

Over half of the Company’s total loans are included in the commercial portfolio segment. These balances are spread across numerous industries, as noted in the table below. The Company manages the related risks to this portfolio by setting certain lending limits for each significant industry.

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The following table provides detail of Regions' commercial portfolio balances in selected industries as of December 31:

Table 11—Commercial Industry Exposure

[[GREPCENT_TABLE]]
[["","2021"],["","Loans","","Unfunded Commitments","","Total Exposure"],["","(In millions)"],["Administrative, support, waste and repair","$","1,489","","","$","1,141","","","$","2,630"],["Agriculture","336","","","253","","","589"],["Educational services","2,975","","","948","","","3,923"],["Energy","1,361","","","2,678","","","4,039"],["Financial services","5,582","","","5,933","","","11,515"],["Government and public sector","2,845","","","526","","","3,371"],["Healthcare","3,918","","","2,270","","","6,188"],["Information","1,929","","","1,233","","","3,162"],["Manufacturing","4,629","","","4,270","","","8,899"],["Professional, scientific and technical services","2,235","","","1,409","","","3,644"],["Real estate (1)","7,343","","","7,720","","","15,063"],["Religious, leisure, personal and non-profit services","1,733","","","730","","","2,463"],["Restaurant, accommodation and lodging","1,658","","","433","","","2,091"],["Retail trade","2,247","","","2,307","","","4,554"],["Transportation and warehousing","3,030","","","1,538","","","4,568"],["Utilities","2,131","","","2,895","","","5,026"],["Wholesale goods","3,756","","","3,189","","","6,945"],["Other (2)","112","","","2,425","","","2,537"],["Total commercial","$","49,309","","","$","41,898","","","$","91,207"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","2020 (3)"],["","Loans","","Unfunded Commitments","","Total Exposure"],["","(In millions)"],["Administrative, support, waste and repair","$","1,605","","","$","1,017","","","$","2,622"],["Agriculture","424","","","332","","","756"],["Educational services","3,055","","","852","","","3,907"],["Energy","1,676","","","2,337","","","4,013"],["Financial services","4,416","","","4,905","","","9,321"],["Government and public sector","2,907","","","621","","","3,528"],["Healthcare","4,141","","","2,468","","","6,609"],["Information","1,699","","","1,096","","","2,795"],["Manufacturing","4,555","","","4,216","","","8,771"],["Professional, scientific and technical services","2,467","","","1,594","","","4,061"],["Real estate (1)","7,285","","","7,456","","","14,741"],["Religious, leisure, personal and non-profit services","1,966","","","810","","","2,776"],["Restaurant, accommodation and lodging","2,196","","","341","","","2,537"],["Retail trade","2,578","","","2,178","","","4,756"],["Transportation and warehousing","2,731","","","1,415","","","4,146"],["Utilities","1,829","","","2,758","","","4,587"],["Wholesale goods","3,050","","","3,303","","","6,353"],["Other (2)","(5)","","","1,774","","","1,769"],["Total commercial","$","48,575","","","$","39,473","","","$","88,048"]]
[[/GREPCENT_TABLE]]

_______

(1)"Real estate" includes REITs, which are unsecured commercial and industrial products that are real estate related.

(2)"Other" contains balances related to non-classifiable and invalid business industry codes offset by payments in process and fee accounts that are not available at the loan level.

(3)As customers' businesses evolve (e.g. up or down the vertical manufacturing chain), Regions may need to change the assigned business industry code used to define the customer relationship. When these changes occur, Regions does not recast the customer history for prior periods into the new classification because the business industry code used in the prior period was deemed appropriate. As a result, year over year changes may be impacted.

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Investor Real Estate

Loans for real estate development are repaid through cash flows related to the operation, sale or refinance of the property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of real estate or income generated from the real estate collateral. A portion of Regions’ investor real estate portfolio segment consists of loans secured by residential product types (land, single-family and condominium loans) within Regions’ markets. Additionally, this category includes loans made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers. Total investor real estate loans decreased $236 million in comparison to 2020 year-end balances.

Residential First Mortgage

Residential first mortgage loans represent loans to consumers to finance a residence. These loans are typically financed over a 15 to 30 year term and, in most cases, are extended to borrowers to finance their primary residence. These loans increased $937 million in comparison to 2020 year-end balances. The increase in residential first mortgage loans was primarily driven by strong originations due to continued historically low market interest rates. Approximately $6.0 billion in new loan originations were retained on the balance sheet through the year ended December 31, 2021.

Home Equity Lines

Home equity lines are secured by a first or second mortgage on the borrower's residence and allow customers to borrow against the equity in their homes. Home equity lines decreased by $795 million in comparison to 2020 year-end balances continuing the pace of decline experienced in the past several years as payoffs and paydowns outpaced production. Substantially all of this portfolio was originated through Regions’ branch network.

Beginning in December 2016, new home equity lines of credit have a 10-year draw period and a 20-year repayment term. During the 10-year draw period customers do not have an interest-only payment option, except on a very limited basis. From May 2009 to December 2016, home equity lines of credit had a 10-year draw period and a 10-year repayment term. Prior to May 2009, the predominant structure was a 20-year draw period with a balloon payment upon maturity. The term “balloon payment” means there are no principal payments required until the balloon payment is due for interest-only lines of credit.

The following table presents information regarding the future principal payment reset dates for the Company's home equity lines of credit as of December 31, 2021. The balances presented are based on maturity date for lines with a balloon payment and draw period expiration date for lines that convert to a repayment period.

Table 12—Home Equity Lines of Credit - Future Principal Payment Resets

[[GREPCENT_TABLE]]
[["","First Lien","","% of Total","","Second Lien","","% of Total","","Total"],["","(Dollars in millions)"],["2022","$","122","","","3.27","%","","$","101","","","2.68","%","","$","223"],["2023","90","","","2.40","","","67","","","1.79","","","157"],["2024","130","","","3.47","","","92","","","2.46","","","222"],["2025","130","","","3.47","","","139","","","3.73","","","269"],["2026","179","","","4.79","","","185","","","4.93","","","364"],["2027-2032","1,433","","","38.27","","","1,067","","","28.49","","","2,500"],["2032-2036","2","","","0.04","","","2","","","0.06","","","4"],["Thereafter","3","","","0.09","","","2","","","0.06","","","5"],["Total","$","2,089","","","55.80","%","","$","1,655","","","44.20","%","","$","3,744"]]
[[/GREPCENT_TABLE]]

Home Equity Loans

Home equity loans are also secured by a first or second mortgage on the borrower's residence, are primarily originated as amortizing loans, and allow customers to borrow against the equity in their homes. Home equity loans decreased by $203 million in comparison to 2020 year-end balances. Substantially all of this portfolio was originated through Regions’ branch network.

Other Consumer Credit Quality Data

The Company calculates an estimate of the current value of property secured as collateral for both residential first mortgage and home equity lending products (“current LTV”). The estimate is based on home price indices compiled by a third party. The third party data indicates trends for MSAs. Regions uses the third party valuation trends from the MSAs in the Company's footprint in its estimate. The trend data is applied to the loan portfolios taking into account the age of the most recent valuation and geographic area.

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The following table presents current LTV data for components of the residential first mortgage, home equity lines and home equity loans classes of the consumer portfolio segment. Current LTV data for some loans in the portfolio is not available due to mergers and systems integrations. The amounts in the table represent the entire loan balance. For purposes of the table below, if the loan balance exceeds the current estimated collateral the entire balance is included in the “Above 100%” category, regardless of the amount of collateral available to partially offset the shortfall.

Table 13—Estimated Current Loan to Value Ranges

[[GREPCENT_TABLE]]
[["","December 31, 2021"],["","Residential First Mortgage","","Home Equity Lines of Credit","","Home Equity Loans"],["","","1st Lien","","2nd Lien","","1st Lien","","2nd Lien"],["","(In millions)"],["Estimated current LTV:"],["Above 100%","$","5","","","$","1","","","$","\u2014","","","$","2","","","$","1"],["Above 80% - 100%","1,667","","","6","","","8","","","16","","","4"],["80% and below","15,564","","","2,053","","","1,588","","","2,305","","","167"],["Data not available","276","","","29","","","59","","","11","","","4"],["","$","17,512","","","$","2,089","","","$","1,655","","","$","2,334","","","$","176"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","December 31, 2020"],["","Residential First Mortgage","","Home Equity Lines of Credit","","Home Equity Loans"],["","","1st Lien","","2nd Lien","","1st Lien","","2nd Lien"],["","(In millions)"],["Estimated current LTV:"],["Above 100%","$","20","","","$","4","","","$","2","","","$","5","","","$","4"],["Above 80% - 100%","2,510","","","32","","","82","","","22","","","12"],["80% and below","13,790","","","2,417","","","1,888","","","2,452","","","207"],["Data not available","255","","","32","","","82","","","7","","","4"],["","$","16,575","","","$","2,485","","","$","2,054","","","$","2,486","","","$","227"]]
[[/GREPCENT_TABLE]]

Consumer Credit Card

Consumer credit card lending represents primarily open-ended variable interest rate consumer credit card loans. These balances decreased $29 million from year-end 2020.

Other Consumer—Exit Portfolios

Other consumer—exit portfolios includes lending initiatives through third parties consisting of loans made through automotive dealerships and other point of sale lending. Regions ceased originating new loans related to these businesses prior to 2020 and therefore the portfolio balance has decreased $1.0 billion from year-end 2020.

Other Consumer

Other consumer loans primarily include indirect and direct consumer loans, overdrafts and other revolving loans. Other consumer loans increased $3.1 billion from year-end 2020 primarily due to the Company's acquisition of EnerBank in the fourth quarter of 2021.

Regions considers factors such as periodic updates of FICO scores, unemployment, home prices, and geography as credit quality indicators for consumer loans. FICO scores are obtained at origination and refreshed FICO scores are obtained by the Company quarterly for most consumer loans. For more information on credit quality indicators refer to Note 5 "Allowance for Credit Losses".

Allowance

The allowance consists of two components: the allowance for loan losses and the reserve for unfunded credit commitments. Unfunded credit commitments includes items such as letters of credit, financial guarantees and binding unfunded loan commitments.

The allowance totaled $1.6 billion as of December 31, 2021, compared to $2.3 billion at December 31, 2020, which represents management's best estimate of expected losses over the life of the loan and credit commitment portfolios. Key drivers of the change in the allowance are presented in Table 14 below for the quarters within and the years ended December

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31, 2021, and 2020 to illustrate categories of changes in the allowance under CECL. While many of these items overlap regarding impact, they are included in the category most relevant.

Table 14— Allowance Changes

[[GREPCENT_TABLE]]
[["","Three Months Ended"],["","December 31, 2021","","September 30, 2021","","June 30, 2021","","March 31, 2021"],["","(In millions)"],["Allowance for credit losses, beginning balance","$","1,499","","","$","1,684","","","$","2,068","","","$","2,293"],["Initial allowance on acquired PCD loans","9","","","\u2014","","","\u2014","","","\u2014"],["Net charge-offs","(44)","","","(30)","","","(47)","","","(83)"],["Provision (credit) over net charge-offs:"],["Economic outlook and adjustments","(51)","","","(91)","","","(265)","","","(130)"],["Changes in portfolio credit quality/uncertainty","(19)","","","(66)","","","(67)","","","(14)"],["Changes in specific reserves","(19)","","","(21)","","","(36)","","","(17)"],["Other portfolio changes (1)","40","","","23","","","31","","","19"],["Initial provision impact of non-PCD acquired loans(2)","159","","","\u2014","","","\u2014","","","\u2014"],["Total provision over (less than) net charge-offs","66","","","(185)","","","(384)","","","(225)"],["Allowance for credit losses, ending balance","$","1,574","","","$","1,499","","","$","1,684","","","$","2,068"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Three Months Ended"],["","December 31, 2020","","September 30, 2020","","June 30, 2020","","March 31, 2020"],["","(In millions)"],["Allowance for credit losses, beginning balance (as adjusted for change in accounting guidance on January 1, 2020) (3)","$","2,425","","","$","2,425","","","$","1,665","","","$","1,415"],["Initial allowance on acquired PCD loans","\u2014","","","\u2014","","","60","","","\u2014"],["Net charge-offs","(94)","","","(113)","","","(182)","","","(123)"],["Provision (credit) over net charge-offs:"],["Economic outlook and adjustments","(137)","","","(22)","","","287","","","223"],["Changes in portfolio credit quality/uncertainty","147","","","115","","","382","","","42"],["Changes in specific reserves","(5)","","","52","","","(10)","","","36"],["Other portfolio changes (1)","(43)","","","(32)","","","147","","","72"],["Initial provision impact of non-PCD acquired loans(2)","\u2014","","","\u2014","","","76","","","\u2014"],["Total provision over (less than) net charge-offs","(132)","","","\u2014","","","700","","","250"],["Allowance for credit losses, ending balance","$","2,293","","","$","2,425","","","$","2,425","","","$","1,665"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Twelve months ended December 31, 2021","","Twelve months ended December 31, 2020"],["","(In millions)"],["Allowance for credit losses at January 1 (as adjusted for change in accounting guidance) (1)","$","2,293","","","$","1,415"],["Initial allowance on acquired PCD loans","9","","","60"],["Net charge-offs","(204)","","","(512)"],["Provision over net charge-offs:"],["Economic outlook and adjustments","(537)","","","351"],["Changes in portfolio credit quality/uncertainty","(166)","","","686"],["Changes in specific reserves","(93)","","","73"],["Other portfolio changes (1)","113","","","144"],["Initial provision impact of non-PCD acquired loans(2)","159","","","76"],["Total provision over (less than) net charge-offs","(728)","","","818"],["Allowance for credit losses at December 31","$","1,574","","","$","2,293"]]
[[/GREPCENT_TABLE]]

_________

(1)This line item includes the net impact of portfolio growth, portfolio run-off, pay-downs and changes in the mix of total outstanding loans. This line does not include PPP loans of $748 million, $1.5 billion, $2.9 billion, $4.3 billion, $3.6 billion, $4.6 billion and $4.5 billion as of December 31, 2021, September 30, 2021, June 30, 2021, March 31, 2021, December 31, 2020, September 30, 2020, and June 30, 2020 respectively, which are fully backed by the U.S. government and have an immaterial associated allowance.

(2)The balance for the twelve months ended December 31, 2021 includes $145 million related to the initial allowance for non-PCD loans acquired as a part of the fourth quarter 2021 EnerBank acquisition. The balance for the twelve months ended December 31, 2020 includes $64 million related to the initial allowance for non-PCD loans acquired as part of the second quarter 2020 Ascentium acquisition.

(3)Regions adopted the CECL accounting guidance on January 1, 2020 and recorded the cumulative effect of the change in accounting guidance as a reduction to retained earnings and an increase to deferred tax assets. See Note 1 for additional details.

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Credit metrics are monitored throughout the quarter in order to understand external macro-views, trends and industry outlooks, as well as Regions' internal specific views of credit metrics and trends. The fourth quarter of 2021 exhibited positive credit performance inclusive of the increased loans from Regions' fourth quarter acquisition of EnerBank. While total net charge-offs did increase $14 million, commercial and investor real estate criticized balances decreased approximately $149 million and classified balances decreased $41 million compared to the third quarter of 2021. Non-performing loans, excluding held for sale, and non-performing assets decreased approximately $79 million and $72 million, respectively, compared to the third quarter of 2021.

Regions' purchase of EnerBank included approximately $3.1 billion in loans that are included in Regions' other consumer loan portfolio, of which approximately 6% were considered to be PCD. Purchased loans that have experienced a more than insignificant deterioration in credit quality since origination are considered to be credit deteriorated. The EnerBank acquisition resulted in $168 million in additional allowance in the fourth quarter, of which $159 million was recorded through the provision for credit losses and the remaining $9 million was for acquired PCD loans and did not impact the provision for credit losses. See the "EnerBank Acquisition" section for more information.

Regions' December 2021 forecast was generally improved compared to the September 2021 forecast with continued increases in HPI and stable GDP growth; however a significant level of uncertainty remains. Regions' economic forecast utilized in the December 31, 2021 allowance estimate considered top-line real GDP growth, business investment in equipment and machinery, further vaccine distribution and ample liquidity. Additionally, mortgage LTVs are holding up well, but the rate of house price appreciation has begun to slow and continued moderation is expected through the forecast horizon. Ongoing supply chain bottlenecks, labor supply constraints, inflationary pressures and COVID-19 variants provide uncertainty. Refer to the Economic Environment in Regions' Banking Markets within the "Executive Overview" section for more information. Furthermore, Regions benchmarks its internal forecast with external forecasts and external data available.

The table below reflects a range of macroeconomic factors utilized in the Base forecast over the two-year R&S forecast period as of December 31, 2021. The unemployment rate is the most significant macroeconomic factor among the CECL models. Unemployment rates in the fourth quarter and the forecasted periods remained normalized.

Table 15— Macroeconomic Factors in the Forecast

[[GREPCENT_TABLE]]
[["","Pre-R&S Period","","Base R&S Forecast"],["December 31, 2021"],["4Q2021","","1Q2022","","2Q2022","","3Q2022","","4Q2022","","1Q2023","","2Q2023","","3Q2023","","4Q2023"],["Real GDP, annualized % change","6.4","%","","4.0","%","","4.2","%","","4.0","%","","3.4","%","","2.6","%","","2.2","%","","2.1","%","","2.2","%"],["Unemployment rate","4.4","%","","3.9","%","","3.8","%","","3.7","%","","3.7","%","","3.6","%","","3.6","%","","3.5","%","","3.5","%"],["HPI, year-over-year % change","16.7","%","","14.0","%","","9.6","%","","6.0","%","","4.7","%","","4.7","%","","4.7","%","","4.5","%","","4.2","%"],["S&P 500","4,570","","4,643","","4,697","","4,760","","4,833","","4,892","","4,940","","4,987","","5,036"]]
[[/GREPCENT_TABLE]]

The continued improvement in the economic outlook and positive credit performance during the quarter (described above) were significant drivers of the modeled decreases in the allowance, excluding the impact of EnerBank.

While Regions' quantitative allowance methodologies strive to reflect all risk factors, any estimate involves assumptions and uncertainties resulting in some level of imprecision. The qualitative framework has a general imprecision component which is meant to acknowledge that model and forecast errors are inherent in any modeling estimate. The December 31, 2021 general imprecision allowance was reduced compared to the third quarter of 2021, but continues to reflect management's caution with respect to the modeled reductions in the allowance given uncertainties such as concerns about new COVID-19 variants, lingering supply chain issues and inflation.

Based on the overall analysis performed, management deemed an allowance of $1.6 billion to be appropriate to absorb expected credit losses in the loan and credit commitment portfolios as of December 31, 2021.

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Details regarding the allowance and net charge-offs, including an analysis of activity from the previous year’s totals, are included in Table 16 "Allowance for Credit Losses". Net charge-offs decreased $308 million year-over-year, primarily driven by a decline in net charge-offs in the commercial and industrial portfolio as a result of larger individual charge-offs during 2020 coupled with more recoveries in 2021. Additionally, the consumer real estate-related portfolios experienced net recoveries during 2021 and the other consumer-exit portfolios had less charge-offs in 2021 as those portfolios continue to wind down. As noted, economic trends such as interest rates, unemployment, volatility in commodity prices, collateral valuations and inflationary pressure will impact the future levels of net charge-offs and may result in volatility of certain credit metrics during 2022 and beyond. See the "Executive Overview" section for details on expectations for net charge-offs in 2022.

Table 16—Allowance for Credit Losses

[[GREPCENT_TABLE]]
[["","2021","","2020","","2019"],["","(Dollars in millions)"],["Allowance for loan losses at January 1","$","2,167","","","$","869","","","$","840"],["Cumulative change in accounting guidance (1)","\u2014","","","438","","","\u2014"],["Allowance for loan losses, January 1 (as adjusted for change in accounting guidance) (1)","2,167","","","1,307","","","840"],["Loans charged-off:"],["Commercial and industrial","124","","","358","","","138"],["Commercial real estate mortgage\u2014owner-occupied","3","","","10","","","11"],["Commercial real estate construction\u2014owner-occupied","1","","","\u2014","","","1"],["Commercial investor real estate mortgage","20","","","1","","","1"],["Commercial investor real estate construction","\u2014","","","\u2014","","","\u2014"],["Residential first mortgage","2","","","6","","","4"],["Home equity lines","6","","","12","","","21"],["Home equity loans","1","","","3","","","5"],["Consumer credit card","43","","","58","","","67"],["Other consumer- exit portfolios","31","","","61","","","84"],["Other consumer","97","","","104","","","111"],["","328","","","613","","","443"],["Recoveries of loans previously charged-off:"],["Commercial and industrial","56","","","38","","","24"],["Commercial real estate mortgage\u2014owner-occupied","3","","","5","","","5"],["Commercial real estate construction\u2014owner-occupied","\u2014","","","\u2014","","","\u2014"],["Commercial investor real estate mortgage","3","","","3","","","3"],["Commercial investor real estate construction","\u2014","","","\u2014","","","1"],["Residential first mortgage","5","","","3","","","3"],["Home equity lines","14","","","12","","","12"],["Home equity loans","4","","","3","","","4"],["Consumer credit card","11","","","10","","","9"],["Other consumer- exit portfolios","5","","","9","","","12"],["Other consumer","23","","","18","","","12"],["","124","","","101","","","85"],["Net charge-offs (recoveries):"],["Commercial and industrial","68","","","320","","","114"],["Commercial real estate mortgage\u2014owner-occupied","\u2014","","","5","","","6"],["Commercial real estate construction\u2014owner-occupied","1","","","\u2014","","","1"],["Commercial investor real estate mortgage","17","","","(2)","","","(2)"],["Commercial investor real estate construction","\u2014","","","\u2014","","","(1)"],["Residential first mortgage","(3)","","","3","","","1"],["Home equity lines","(8)","","","\u2014","","","9"],["Home equity loans","(3)","","","\u2014","","","1"],["Consumer credit card","32","","","48","","","58"],["Other consumer- exit portfolios","26","","","52","","","72"],["Other consumer","74","","","86","","","99"],["","204","","","512","","","358"],["Provision for loan losses","(493)","","","1,312","","","387"],["Initial allowance on acquired PCD loans","9","","","60","","","\u2014"],["Allowance for loan losses at December 31","1,479","","","2,167","","","869"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","2021","","2020","","2019"],["","(Dollars in millions)"],["Reserve for unfunded credit commitments at January 1","$","126","","","$","45","","","$","51"],["Cumulative change in accounting guidance (1)","\u2014","","","63","","","\u2014"],["Reserve for unfunded credit commitments, as adjusted for change in accounting guidance","126","","","108","","","51"],["Provision (credit) for unfunded credit losses","(31)","","","18","","","(6)"],["Reserve for unfunded credit commitments at December 31","$","95","","","$","126","","","$","45"],["Allowance for credit losses at December 31","$","1,574","","","$","2,293","","","$","914"],["Loans, net of unearned income, outstanding at end of period","$","87,784","","","$","85,266","","","$","82,963"],["Average loans, net of unearned income, outstanding for the period","$","84,802","","","$","87,813","","","$","83,248"],["Net loan charge-offs (recoveries) as a % of average loans, annualized"],["Commercial and industrial","0.16","%","","0.71","%","","0.28","%"],["Commercial real estate mortgage\u2014owner-occupied","\u2014","%","","0.09","%","","0.09","%"],["Commercial real estate construction\u2014owner-occupied","0.42","%","","0.27","%","","\u2014","%"],["Total commercial","0.14","%","","0.64","%","","0.26","%"],["Commercial investor real estate mortgage","0.30","%","","(0.03)","%","","(0.04)","%"],["Commercial investor real estate construction","\u2014","%","","\u2014","%","","(0.05)","%"],["Total investor real estate","0.23","%","","(0.03)","%","","(0.04)","%"],["Residential first mortgage","(0.02)","%","","0.02","%","","0.01","%"],["Home equity- lines of credit","(0.20)","%","","(0.01)","%","","0.15","%"],["Home equity- closed end","(0.11)","%","","0.01","%","","0.05","%"],["Consumer credit card","2.83","%","","3.84","%","","4.44","%"],["Other consumer- exit portfolios","1.70","%","","1.86","%","","1.69","%"],["Other consumer","2.41","%","","3.26","%","","4.74","%"],["Total","0.24","%","","0.58","%","","0.43","%"],["Ratios:"],["Allowance for credit losses at end of period to loans, net of unearned income","1.79","%","","2.69","%","","1.10","%"],["Allowance for loan losses to loans, net of unearned income","1.69","%","","2.54","%","","1.05","%"],["Allowance for credit losses at end of period to non-performing loans, excluding loans held for sale","349","%","","308","%","","180","%"],["Allowance for loan losses to non-performing loans, excluding loans held for sale","328","%","","291","%","","171","%"]]
[[/GREPCENT_TABLE]]

_______

(1)Regions adopted the CECL accounting guidance on January 1, 2020 and recorded the cumulative effect of the change in accounting guidance as a reduction to retained earnings and an increase to deferred tax assets. See Note 1 for additional details.

Allocation of the allowance for credit losses by portfolio segment and class is summarized as follows:

Table 17—Allowance Allocation

[[GREPCENT_TABLE]]
[["","2021","","2020"],["","Loan Balance","","Allowance Allocation(1)","","","Allowance to Loans %(2)","","Loan Balance","","Allowance Allocation(1)","","","Allowance to Loans %(2)"],["","(Dollars in millions)"],["Commercial and industrial","$","43,758","","","$","613","","","","1.4","%","","$","42,870","","","$","1,027","","","","2.4","%"],["Commercial real estate mortgage\u2014owner-occupied","5,287","","","118","","","","2.2","","","5,405","","","242","","","","4.5"],["Commercial real estate construction\u2014owner-occupied","264","","","9","","","","3.5","","","300","","","24","","","","8.0"],["Total commercial","49,309","","","740","","","","1.5","","","48,575","","","1,293","","","","2.7"],["Commercial investor real estate mortgage","5,441","","","77","","","","1.4","","","5,394","","","167","","","","3.1"],["Commercial investor real estate construction","1,586","","","10","","","","0.6","","","1,869","","","30","","","","1.6"],["Total investor real estate","7,027","","","87","","","","1.2","","","7,263","","","197","","","","2.7"],["Residential first mortgage","17,512","","","122","","","","0.7","","","16,575","","","155","","","","0.9"],["Home equity lines","3,744","","","83","","","","2.2","","","4,539","","","122","","","","2.7"],["Home equity loans","2,510","","","28","","","","1.1","","","2,713","","","33","","","","1.2"],["Consumer credit card","1,184","","","120","","","","10.2","","","1,213","","","161","","","","13.3"],["Other consumer\u2014exit portfolios","1,071","","","64","","","","6.0","","","2,035","","","124","","","","6.1"],["Other consumer","5,427","","","330","","","","6.1","","","2,353","","","208","","","","8.9"],["Total consumer","31,448","","","747","","","","2.4","","","29,428","","","803","","","","2.7"],["Total","$","87,784","","","$","1,574","","","","1.8","%","","$","85,266","","","$","2,293","","","","2.7","%"]]
[[/GREPCENT_TABLE]]

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_____

(1)Regions adopted the CECL accounting guidance on January 1, 2020 and recorded the cumulative effect of the change in accounting guidance as a reduction to retained earnings and an increase to deferred tax assets. The allowance allocation after January 1, 2020 is the allowance for credit losses compared to the allowance for loan losses prior to January 1, 2020. See Note 1 for additional details.

(2)Amounts have been calculated using whole dollar values.

TROUBLED DEBT RESTRUCTURINGS (TDRs)

TDRs are modified loans in which a concession is provided to a borrower experiencing financial difficulty. As provided initially in the CARES Act passed into law on March 27, 2020 and subsequently extended through the Consolidated Appropriations Act signed into law on December 27, 2020, certain loan modifications related to the COVID-19 pandemic beginning March 1, 2020 through the earlier of 60 days after the end of the pandemic or January 1, 2022 are eligible for relief from TDR classification. Regions elected this provision of both Acts; therefore, modified loans that met the required guidelines for relief are not considered TDRs and are excluded from the disclosures below.

Under Regions' COVID-19 deferral and forbearance programs, customer payments are deferred for a period of time, typically 90 days. Upon expiration of the deferral period, customers may apply for additional relief or resume making payments on their loans. Repayment plans for the deferrals differ depending on the loan type and repayment ability of the borrower. The CARES Act relief precluded the majority of these modifications from being classified as TDRs as of December 31, 2021.

Residential first mortgage, home equity, consumer credit card and other consumer TDRs are consumer loans modified under the CAP. Commercial and investor real estate loan modifications are not the result of a formal program, but represent situations where modifications were offered as a workout alternative. Renewals of classified commercial and investor real estate loans are considered to be TDRs, even if no reduction in interest rate is offered, if the existing terms are considered to be below market. Insignificant modifications are not considered TDRs. More detailed information is included in Note 5 "Allowance for Credit Losses" to the consolidated financial statements. The following table summarizes the loan balance and related allowance for accruing and non-accruing TDRs for the periods ending December 31:

Table 18—Troubled Debt Restructurings

[[GREPCENT_TABLE]]
[["","2021","","2020"],["","Loan Balance","","Allowance for Credit Losses","","Loan Balance","","Allowance for Credit Losses"],["","(In millions)"],["Accruing:"],["Commercial","$","81","","","$","4","","","$","77","","","$","6"],["Investor real estate","1","","","\u2014","","","44","","","1"],["Residential first mortgage","220","","","31","","","188","","","23"],["Home equity lines","28","","","3","","","35","","","5"],["Home equity loans","58","","","8","","","78","","","8"],["Consumer credit card","\u2014","","","\u2014","","","1","","","\u2014"],["Other consumer","4","","","\u2014","","","4","","","\u2014"],["","392","","","46","","","427","","","43"],["Non-accrual status or 90 days past due and still accruing:"],["Commercial","87","","","14","","","124","","","18"],["Residential first mortgage","31","","","5","","","42","","","6"],["Home equity lines","2","","","\u2014","","","2","","","\u2014"],["Home equity loans","6","","","1","","","7","","","$","1"],["","126","","","20","","","175","","","25"],["Total TDRs - Loans","$","518","","","$","66","","","$","602","","","$","68"],["TDRs- Held For Sale","\u2014","","","\u2014","","","1","","","\u2014"],["Total TDRs","$","518","","","$","66","","","$","603","","","$","68"]]
[[/GREPCENT_TABLE]]

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The following table provides an analysis of the changes in commercial and investor real estate TDRs. TDRs with subsequent restructurings that meet the definition of a TDR are only reported as TDR additions in the period they were first modified. Other than resolutions such as charge-offs, foreclosures, payments, sales and transfers to held for sale, Regions may remove loans from TDR classification if the following conditions are met: the borrower's financial condition improves such that the borrower is no longer in financial difficulty, the loan has not had any forgiveness of principal or interest, the loan has not been restructured as an "A" note/"B" note, the loan has been reported as a TDR over one fiscal year-end and the loan is subsequently refinanced or restructured at market terms such that it qualifies as a new loan.

For the consumer portfolio, changes in TDRs are primarily due to additions from CAP modifications and outflows from payments and charge-offs. Given the types of concessions currently being granted under the CAP as detailed in Note 5 "Allowance for Credit Losses" to the consolidated financial statements, Regions does not expect that the market interest rate condition will be widely achieved. Therefore, Regions expects consumer loans modified through CAP to continue to be identified as TDRs for the remaining term of the loan.

Table 19—Analysis of Changes in Commercial and Investor Real Estate TDRs

[[GREPCENT_TABLE]]
[["","2021","","2020"],["","Commercial","","Investor Real Estate","","Commercial","","Investor Real Estate"],["","(In millions)"],["Balance, beginning of year","$","201","","","$","44","","","$","245","","","$","33"],["Additions","115","","","71","","","252","","","40"],["Charge-offs","(12)","","","\u2014","","","(67)","","","\u2014"],["Other activity, inclusive of payments and removals(1)","(136)","","","(114)","","","(229)","","","(29)"],["Balance, end of year","$","168","","","$","1","","","$","201","","","$","44"]]
[[/GREPCENT_TABLE]]

_________

(1)The majority of this category consists of payments and sales. It also includes normal amortization/accretion of loan basis adjustments, loans transferred to held for sale, removals and reclassifications between portfolio segments. Additionally, it includes $16 million of commercial loans and $41 million of investor real estate loans refinanced or restructured as new loans and removed from TDR classification during 2021. During 2020, $21 million of commercial loans and $12 million of investor real estate loans were refinanced or restructured as new loans and removed from TDR classification.

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NON-PERFORMING ASSETS

The following table presents non-performing assets as of December 31:

Table 20—Non-Performing Assets

[[GREPCENT_TABLE]]
[["","2021","","2020"],["","(Dollars in millions)"],["Non-performing loans:"],["Commercial and industrial","$","305","","","$","418"],["Commercial real estate mortgage\u2014owner-occupied","52","","","97"],["Commercial real estate construction\u2014owner-occupied","11","","","9"],["Total commercial","368","","","524"],["Commercial investor real estate mortgage","3","","","114"],["Total investor real estate","3","","","114"],["Residential first mortgage","33","","","53"],["Home equity lines","40","","","46"],["Home equity loans","7","","","8"],["Total consumer","80","","","107"],["Total non-performing loans, excluding loans held for sale","451","","","745"],["Non-performing loans held for sale","13","","","6"],["Total non-performing loans(1)","464","","","751"],["Foreclosed properties","10","","","25"],["Total non-performing assets(1)","$","474","","","$","776"],["Accruing loans 90 days past due:"],["Commercial and industrial","$","5","","","$","7"],["Commercial real estate mortgage\u2014owner-occupied","1","","","1"],["Total commercial","6","","","8"],["Residential first mortgage(2)","74","","","99"],["Home equity lines","21","","","19"],["Home equity loans","12","","","13"],["Consumer credit card","12","","","14"],["Other consumer\u2014exit portfolios","2","","","4"],["Other consumer","13","","","7"],["Total consumer","134","","","156"],["","$","140","","","$","164"],["Non-performing loans(1) to loans and non-performing loans held for sale","0.53","%","","0.88","%"],["Non-performing assets(1) to loans, foreclosed properties, non-marketable investments, and non-performing loans held for sale","0.54","%","","0.91","%"]]
[[/GREPCENT_TABLE]]

_________

(1)Excludes accruing loans 90 days past due.

(2)Excludes residential first mortgage loans that are 100% guaranteed by the FHA and all guaranteed loans sold to the GNMA where Regions has the right but not the obligation to repurchase. Total 90 days or more past due guaranteed loans excluded were $49 million at December 31, 2021 and $57 million at December 31, 2020.

Non-performing loans decreased during 2021 primarily driven by improvements in retail, energy, restaurant, accommodation, and lodging, as well as, administrative, support,and waste repair.

Economic trends such as interest rates, unemployment, inflation, volatility in commodity prices, and collateral valuations will impact the future level of non-performing assets. Circumstances related to individually large credits could also result in volatility.

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The following table provides an analysis of non-accrual loans (excluding loans held for sale) by portfolio segment:

Table 21— Analysis of Non-Accrual Loans

[[GREPCENT_TABLE]]
[["","Non-Accrual Loans, Excluding Loans Held for Sale for the Year Ended December 31, 2021"],["","Commercial","","Investor Real Estate","","Consumer(1)","","Total"],["","(In millions)"],["Balance at beginning of year","$","524","","","$","114","","","$","107","","","$","745"],["Additions","417","","","4","","","3","","","424"],["Net payments/other activity","(291)","","","(1)","","","(30)","","","(322)"],["Return to accrual","(141)","","","(1)","","","\u2014","","","(142)"],["Charge-offs on non-accrual loans(2)","(114)","","","(19)","","","\u2014","","","(133)"],["Transfers to held for sale(3)","(25)","","","(94)","","","\u2014","","","(119)"],["Transfers to real estate owned","(2)","","","\u2014","","","\u2014","","","(2)"],["Balance at end of year","$","368","","","$","3","","","$","80","","","$","451"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Non-Accrual Loans, Excluding Loans Held for Sale for the Year Ended December 31, 2020"],["","Commercial","","Investor Real Estate","","Consumer(1)","","Total"],["","(In millions)"],["Balance at beginning of year","$","431","","","$","2","","","$","74","","","$","507"],["Additions","797","","","121","","","35","","","953"],["Net payments/other activity","(261)","","","(8)","","","(2)","","","(271)"],["Return to accrual","(85)","","","\u2014","","","\u2014","","","(85)"],["Charge-offs on non-accrual loans(2)","(321)","","","\u2014","","","\u2014","","","(321)"],["Transfers to held for sale(3)","(19)","","","(1)","","","\u2014","","","(20)"],["Transfers to real estate owned","(4)","","","\u2014","","","\u2014","","","(4)"],["Sales","(14)","","","\u2014","","","\u2014","","","(14)"],["Balance at end of year","$","524","","","$","114","","","$","107","","","$","745"]]
[[/GREPCENT_TABLE]]

________

(1)All net activity within the consumer portfolio segment other than sales and transfers to held for sale (including related charge-offs) is included as a single net number within the net payments/other activity line.

(2)Includes charge-offs on loans on non-accrual status and charge-offs taken upon sale and transfer of non-accrual loans to held for sale.

(3)Transfers to held for sale are shown net of charge-offs of $7 million recorded upon transfer for both years ended December 31, 2021 and 2020, respectively.

Goodwill

Goodwill totaled $5.7 billion at December 31, 2021 and $5.2 billion at December 31, 2020. Refer to the “Critical Accounting Policies” section earlier in this report for detailed discussions of the Company’s methodology for testing goodwill for impairment. Refer to Note 1 "Summary of Significant Accounting Policies" and Note 9 "Intangible Assets" to the consolidated financial statements for the methodologies and assumptions used in the goodwill impairment analysis. Additionally, see the "EnerBank" and "Sabal" sections for details on goodwill recorded as a result of these acquisitions.

Deposits

Regions competes with other banking and financial services companies for a share of the deposit market. Regions’ ability to compete in the deposit market depends heavily on the pricing of its deposits and how effectively the Company meets customers’ needs. Regions employs various means to meet those needs and enhance competitiveness, such as providing a high level of customer service, competitive pricing and convenient branch locations and hours for its customers. Regions also serves customers through providing centralized, high-quality banking services and the Company's digital channels and contact center.

Deposits are Regions’ primary source of funds, providing funding for 94 percent of average earning assets in 2021 and 90 percent of average earning assets in 2020. Table 22 "Deposits" details year-over-year deposit balance growth on a period-ending basis. Total deposits at December 31, 2021 increased approximately $16.6 billion compared to year-end 2020 levels across all categories.

Deposit costs decreased to 5 basis points for 2021, compared to 16 basis points for 2020. The rate paid on interest-bearing deposits decreased to 9 basis points in 2021 compared to 27 basis points for 2020. The decrease in the rate paid on interest-bearing deposits during 2021 is largely due to the continued decline of short-term interest rates. Low deposit costs are driven primarily by the composition of the Company's deposit base, which includes a significant amount of low-cost and relatively small account balance consumer deposits. The deposit base composition is a key component of the Company's franchise value.

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The following table summarizes deposits by category as of December 31:

Table 22—Deposits

[[GREPCENT_TABLE]]
[["","2021","","2020"],["","(In millions)"],["Non-interest-bearing demand","$","58,369","","","$","51,289"],["Interest-bearing checking","28,018","","","24,484"],["Savings","15,134","","","11,635"],["Money market\u2014domestic","31,408","","","29,719"],["Time deposits","6,143","","","5,341"],["Corporate treasury time deposits","\u2014","","","11"],["","$","139,072","","","$","122,479"]]
[[/GREPCENT_TABLE]]

Non-interest-bearing demand deposits increased $7.1 billion to $58.4 billion at year-end 2021 due primarily to pandemic-related deposit inflows which impacted customer liquidity levels resulting in increased consumer customer deposit balances combined with new account growth. To a lesser degree, growth in non-interest-bearing demand deposits is due to an increase in deposits from business customers who continued to retain excess liquidity. Non-interest-bearing demand deposits accounted for approximately 42 percent of total deposits for both 2021 and 2020.

Interest-bearing checking deposits increased $3.5 billion to $28.0 billion and accounted for approximately 20 percent of total deposits for both 2021 and 2020. Savings accounts increased $3.5 billion to $15.1 billion at year-end 2021 and accounted for 11 percent of total deposits at year-end 2021 compared to 9 percent at year-end 2020. Money market accounts increased $1.7 billion to $31.4 billion at year-end 2021 and accounted for approximately 23 percent of total deposits at year-end 2021 compared to 24 percent at year-end 2020. As discussed above, the increase in interest-bearing checking, savings, and money market balances is due to continued excess liquidity as a result of the pandemic combined with new account growth.

Included in time deposits are certificates of deposit and individual retirement accounts. Time deposits increased $802 million to $6.1 billion at year-end 2021. In connection with the EnerBank acquisition, the Company acquired $2.8 billion of deposits including an immaterial deposit premium associated with the purchase, the majority of which were time deposits. See the "EnerBank Acquisition" section for more information. The increase associated with EnerBank was partially offset by maturities in the existing portfolio and continued under-utilization of time deposit accounts due to continued lower interest rates in 2021. Time deposits accounted for 4 percent of total deposits in both 2021 and 2020.

The amount of estimated uninsured deposits at December 31, 2021 and 2020, totaled $56.2 billion and $50.6 billion, respectively. The estimate of uninsured deposits was based upon methodologies used in the Company's Call Report. Time deposit accounts with balances of $250,000 or more totaled $571 million and $696 million at December 31, 2021 and 2020, respectively. The following table shows scheduled maturities of estimated uninsured time deposits as of December 31, 2021:

Table 23—Maturity of Uninsured Time Deposits

[[GREPCENT_TABLE]]
[["","2021"],["","(In millions)"],["Uninsured time deposits, maturing in:"],["3 months or less","$","124"],["Over 3 through 6 months","109"],["Over 6 through 12 months","108"],["Over 12 months","145"],["","$","486"]]
[[/GREPCENT_TABLE]]

Borrowed Funds

Total long-term borrowings decreased approximately $1.2 billion to $2.4 billion at December 31, 2021. Throughout 2021, Regions redeemed four classes of senior notes totaling $1.6 billion in their entirety. In 2021, Regions also redeemed $97 million in note securitizations. The issuance of $650 million of parent senior notes due 2028 was a partial offset to the redemptions.

See Note 11 "Borrowed Funds" to the consolidated financial statements for further discussion of both short-term and long-term borrowings.

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Ratings

    Table 24 "Credit Ratings" reflects the debt ratings information of Regions Financial Corporation and Regions Bank by Standard and Poor's ("S&P"), Moody’s, Fitch and Dominion Bond Rating Service Morningstar ("DBRS") as of December 31, 2021.

Table 24—Credit Ratings

[[GREPCENT_TABLE]]
[["","As of December 31, 2021"],["","S&P","Moody\u2019s","Fitch","DBRS"],["Regions Financial Corporation"],["Senior unsecured debt","BBB+","Baa2(1)","BBB+","AL"],["Subordinated debt","BBB","Baa2(1)","BBB","BBBH"],["Regions Bank"],["Short-term","A-2","P-1","F1","R-IL"],["Long-term bank deposits","N/A","A2(1)","A-","A"],["Senior unsecured debt","A-","Baa2(1)","BBB+","A"],["Subordinated debt","BBB+","Baa2(1)","BBB","AL"],["Outlook","Stable","U/R","Positive","Positive"]]
[[/GREPCENT_TABLE]]

_________

N/A - not applicable.

U/R - Outlook changed from Stable to Under Review.

(1) Indicates rating was under review for upgrade as of December 31, 2021. The ratings were subsequently upgraded in February of 2022.

On July 13, 2021, Fitch upgraded Regions' outlook from Stable to Positive citing improved credit quality and returns relative to peers. On November 22, 2021, DBRS upgraded Regions' outlook from Stable to Positive based on the company's diversified and strong franchise and balance sheet. On November 23, 2021, Moody's placed select ratings and the outlook for Regions and Regions Bank on review for upgrade. Additionally, Moody's changed the outlook for Regions and Regions Bank from Stable to Under Review.

Subsequent to year-end, Moody's upgraded the senior unsecured and subordinated debt ratings of Regions Financial Corporation to Baa1 from Baa2 and changed the outlook to Stable from Under Review. Additionally, Regions Bank's senior unsecured and subordinated debt ratings were upgraded to Baa1 from Baa2, and its long-term bank deposits rating was upgraded to A1 from A2. The upgrades reflect both the Company's improved core profitability and asset risk profile, as well as the strength of the Company's funding and liquidity position.

In general, ratings agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, probability of government support, and level and quality of earnings. Any downgrade in credit ratings by one or more ratings agencies may impact Regions in several ways, including, but not limited to, Regions’ access to the capital markets or short-term funding, borrowing cost and capacity, collateral requirements, and acceptability of its letters of credit, thereby potentially adversely impacting Regions’ financial condition and liquidity. See the “Risk Factors” section of this Annual Report on Form 10-K for more information.

A security rating is not a recommendation to buy, sell or hold securities, and the ratings are subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. Additional information on the credit rating ranking within the overall classification system is located on the website of each credit rating agency.

Shareholders' Equity

Shareholders’ equity was $18.3 billion at December 31, 2021 as compared to $18.1 billion at December 31, 2020. During 2021, net income increased shareholders' equity by $2.5 billion, cash dividends on common stock and cash dividends on preferred stock reduced shareholders' equity by $620 million and $108 million, respectively. Changes in AOCI decreased shareholders' equity by $1.0 billion, primarily due to the net change in unrealized gains (losses) on securities available for sale and derivative instruments as a result of changes in market interest rates during 2021. The derivative instruments are hedges designed to protect net interest income in a low short-term interest rate environment, such as the one that currently exists. During the second quarter of 2021, the Company issued Series E preferred stock, which increased shareholders' equity by $390 million. During the second quarter of 2021, the Company also redeemed all of the outstanding shares of its Series A preferred stock, which decreased shareholders' equity by $500 million. Common stock repurchased during 2021 reduced shareholders' equity $467 million. These shares were immediately retired and therefore are not included in treasury stock.

See Note 14 "Shareholders' Equity and Accumulated Other Comprehensive Income (Loss)" to the consolidated financial statements for additional information.

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REGULATORY REQUIREMENTS

CAPITAL RULES

Regions and Regions Bank are required to comply with regulatory capital requirements established by Federal and State banking agencies. These regulatory capital requirements involve quantitative measures of the Company's assets, liabilities and selected off-balance sheet items, and also qualitative judgments by the regulators. Failure to meet minimum capital requirements can subject the Company to a series of increasingly restrictive regulatory actions. Under the Basel III Rules, Regions is designated as a standardized approach bank. Regions is a "Category IV" institution under the FRB's rules for tailoring enhanced prudential standards.

In the third quarter of 2020, the federal banking agencies finalized a rule related to the impact of CECL on regulatory capital requirements. The rule allows an addback to regulatory capital for the impacts of CECL for a two-year period. At the end of the two years, the impact is then phased-in over the following three years. The addback is calculated as the impact of initial adoption, adjusted for 25 percent of subsequent changes in the allowance. At December 31, 2021, the impact of the addback on CET1 was approximately $408 million or approximately 36 basis points. The phase-in will be approximately $100 million per year beginning in the first quarter of 2022. Assuming the same level of risk-weighted assets as of December 31, 2021, the phase-in will lower the CET1 ratio by approximately 10 basis points per year.

During the third quarter of 2020, and in connection with the results of its supervisory stress test released in June 2020, the Federal Reserve finalized Regions' SCB requirement for the fourth quarter of 2020 through the third quarter of 2021 at 3.0 percent. The 3.0 percent requirement represented the amount of capital degradation under the supervisory severely adverse scenario, inclusive of four quarters of planned common stock dividends. In the second quarter of 2021, Regions received the results of the Company's voluntary participation in 2021 CCAR. The FRB communicated that the Company exceeded all minimum capital levels under the supervisory stress test and the Company's SCB for the fourth quarter of 2021 through the third quarter of 2022 is floored at 2.5 percent.

See the "Executive Overview" section for details on expectations of a range for CET1 during 2022.

Additional discussion of the Basel III Rules, their applicability to Regions, recent proposals and final rules issued by the federal banking agencies and recent laws enacted that impact regulatory requirements is included in the "Supervision and Regulation" subsection of the "Business" section. Additional discussion and a tabular presentation of the applicable holding company and bank regulatory capital requirements.is included in Note 12 "Regulatory Capital Requirements and Restrictions" to the consolidated financial statements. Discussion of the final rule to provide relief for the initial capital decrease at adoption of CECL is included in the “Risk Factors” section.

LIQUIDITY

Regions maintains a robust liquidity management framework designed to effectively manage liquidity risk in accordance with sound risk management principals and regulatory expectations. The framework establishes sustainable processes and tools to effectively identify, measure, mitigate, monitor, and report liquidity risks beginning with Regions’ Liquidity Management Policy and the Liquidity Risk Appetite Statements approved by the Board. Processes within the liquidity management framework include, but are not limited to, liquidity risk governance, cash management, liquidity stress testing, liquidity risk limits, contingency funding plans, and collateral management. While the framework is designed to comply with liquidity regulations, the processes are further tailored to be commensurate with Regions’ operating model and risk profile.

See the “Supervision and Regulation—Liquidity Regulation” subsection of the “Business” section, the "Risk Factors" section and the "Liquidity" section for more information.

RISK MANAGEMENT

Regions is exposed to various risks as part of the normal course of operations. The exposure to risk requires sound risk management practices that comprise an integrated and comprehensive set of programs and processes that apply to the entire Company. Accordingly, Regions has established a risk management framework to manage risks and provide reasonable assurance of the achievement of the Company’s strategic objectives.

The primary risk exposures identified and managed through the Company’s risk management framework are market risk, liquidity risk, credit risk, operational risk, legal risk, compliance risk, reputational risk and strategic risk.

•Market risk is the risk to the Company’s financial condition resulting from adverse movements in market rates or prices, such as interest rates, foreign exchange rates or equity prices.

•Liquidity risk is the potential that the Company will be unable to meet its obligations as they come due because of an inability to liquidate assets or obtain adequate funding (referred to as "funding liquidity risk") or the potential that the Company cannot easily unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions (referred to as "market liquidity risk").

•Credit risk is the risk that arises from the potential that a borrower or counterparty will fail to perform on an obligation.

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•Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events.

•Legal risk is defined as the risk associated with the failure to meet Regions' legal obligations from legislative, regulatory, or contractual perspectives.

•Compliance risk is the risk to current or anticipated earnings or capital arising from violations of laws, rules, or regulations, or from non-conformance with prescribed practices, internal policies and procedures, or ethical standards.

•Reputational risk is the potential that negative publicity regarding the Company’s business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions.

•Strategic risk is the risk to current or projected financial condition and resilience from adverse business decisions, poor implementation of business decisions, or lack of responsiveness to changes in the banking industry and operating environment.

Several of these primary risk exposures are expanded upon further within the remaining sections of Management's Discussion and Analysis.

Regions’ risk management framework outlines the Company’s approach for managing risk that includes the following four components:

•Collaborative Risk Culture - A strong, collaborative risk culture is fundamental to the Company's core values and operating principles. It ensures focus on risk in all activities and encourages the necessary mindset and behavior to enable effective risk management and promote sound risk-taking within the bounds of the Company’s risk appetite. The Company's risk culture requires that risks be promptly identified, escalated, and challenged; thereby, benefiting the overall performance of the Company. Sustaining a collaborative risk culture is critical to the Company's success and is a clear expectation of executive management and the Board.

•Sound Risk Appetite - The Company's risk appetite statements define the types and levels of risk the Company is willing to take to achieve its objectives.

•Sustainable Risk Processes - Effective risk management requires sustainable processes and tools to effectively identify, measure, mitigate, monitor, and report risk.

•Responsible Risk Governance - Governance serves as the foundation for comprehensive management of risks facing the Company. It outlines clear responsibility and accountability for managing, monitoring, escalating, and reporting both existing and emerging risks.

Clearly defined roles and responsibilities are critical to the effective management of risk and are central to the four components of the Company’s approach to risk management. Regions utilizes the Three Lines of Defense concept to clearly designate risk management activities within the Company.

•1st Line of Defense activities provide for the identification, acceptance and ownership of risks.

•2nd Line of Defense activities provide for objective oversight of the Company’s risk-taking activities and assessment of the Company’s aggregate risk levels.

•3rd Line of Defense activities provide for independent reviews and assessments of risk management practices across the Company.

The Board provides the highest level of risk management governance. The principal risk management functions of the Board are to oversee processes for evaluating the adequacy of internal controls, risk management, financial reporting and compliance with laws and regulations. The Board has designated an Audit Committee of outside directors to focus on oversight of management's establishment and maintenance of appropriate disclosure controls and procedures over financial reporting. See the "Financial Disclosures and Internal Controls" section of Management's Discussion and Analysis for additional information. The Board has also designated a Risk Committee of outside directors to focus on Regions’ overall risk profile. The Risk Committee annually approves an Enterprise Risk Appetite Statement that reflects core business principles and strategic vision by including quantitative limits and qualitative statements that are organized by risk type. This statement is designed to be a high-level document that sets the tone for the Board’s risk appetite, which is the maximum amount of risk the Company is willing to accept in pursuit of its business objectives. By establishing boundaries around risk taking and business decisions, and by incorporating the needs and goals of its shareholders, regulators, customers and other stakeholders, the Company’s risk appetite is aligned with its strategic priorities and goals.

The Risk Management Group, led by the Company’s Chief Risk Officer, ensures the consistent application of Regions’ risk management approach within the structure of the Company’s operating, capital and strategic plans. The primary activities of the Risk Management Group include:

•Interpreting internal and external signals that point to possible risk issues for the Company;

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•Identifying risks and determining which Company areas and/or products will be affected;

•Ensuring there are mechanisms in place to specifically determine how risks will affect the Company as a whole and the individual area and or product;

•Assisting business groups in analyzing trends and ensuring Company areas have appropriate risk identification and mitigation processes in place; and

•Reviewing the limits, parameters, policies, and procedures in place to ensure the continued appropriateness of risk controls.

As part of its ongoing assessment process, the Risk Management Group makes recommendations to management and the Risk Committee of the Board regarding adjustments to these controls as conditions or risk tolerances change. In addition, the Internal Audit division provides an independent assessment of the Company’s internal control structure and related systems and processes.

Management, with the assistance of the Risk Management Group, follows a formal process for identifying, measuring and documenting key risks facing each business group and determining how those risks can be controlled or mitigated, as well as how the controls can be monitored to ensure they are effective. The Risk Committee receives reports from management to ensure operations are within the limits established by the Enterprise Risk Appetite Statement.

Some of the more significant processes used by management to manage and control risks are described in the remainder of this report. External factors beyond management’s control may result in losses despite the Risk Management Group’s efforts.

MARKET RISK—INTEREST RATE RISK

Regions’ primary market risk is interest rate risk. This includes uncertainty with respect to absolute interest rate levels as well as relative interest rate levels, which are impacted by both the shape and the slope of the various yield curves that affect the financial products and services that the Company offers. To quantify this risk, Regions measures the change in its net interest income in various interest rate scenarios compared to a base case scenario. Net interest income sensitivity to market rate movements is a useful short-term indicator of Regions’ interest rate risk.

Sensitivity Measurement—Financial simulation models are Regions’ primary tools used to measure interest rate exposure. Using a wide range of sophisticated simulation techniques provides management with extensive information on the potential impact to net interest income caused by changes in interest rates. Models are structured to simulate cash flows and accrual characteristics of Regions’ balance sheet. Assumptions are made about the direction and volatility of interest rates, the slope of the yield curve, and the changing composition of the balance sheet that results from both strategic plans and from customer behavior. Among the assumptions are expectations of balance sheet growth and composition, the pricing and maturity characteristics of existing business and the characteristics of future business. Interest rate-related risks are expressly considered, such as pricing spreads, the pricing of deposit accounts, prepayments and other option risks. Regions considers these factors, as well as the degree of certainty or uncertainty surrounding their future behavior.

The primary objective of asset/liability management at Regions is to coordinate balance sheet composition with interest rate risk management to sustain reasonable and stable net interest income throughout various interest rate cycles. In computing interest rate sensitivity for measurement, Regions compares a set of alternative interest rate scenarios to the results of a base case scenario derived using “market forward rates.” The standard set of interest rate scenarios includes the traditional instantaneous parallel rate shifts of plus 100 and 200 basis points. Given low market rates by historical standards, the Company focuses on a falling rate shock scenario where all rates fall to levels consistent with historical 12-month average rate minimums. In addition to parallel curve shifts, multiple curve steepening and flattening scenarios are contemplated. Regions includes simulations of gradual interest rate movements phased in over a six-month period that may more realistically mimic the speed of potential interest rate movements.

Exposure to Interest Rate Movements—As of December 31, 2021, Regions was asset sensitive to both gradual and instantaneous parallel yield curve shifts as compared to the base case for the 12-month measurement horizon ending December 2022.

The fourth quarter of 2021 continued the trend of balance sheet growth in low-cost deposits and cash balances held with the Federal Reserve observed throughout 2021. Retention of these balance sheet liquidity inflows is uncertain and some amount of the recent deposit growth may be more rate sensitive under a rising rate scenario. Therefore, additional sensitivity analysis focused on pandemic-related "surge" deposit pricing behavior and retention is outlined in Table 25.

The estimated exposure associated with the rising and falling rate scenarios in the table below reflects the combined impacts of movements in short-term and long-term interest rates. Currently, net interest income is projected to benefit from rising short-term interest rates (i.e. asset sensitive profile). An increase or reduction in short-term interest rates (such as the Fed Funds rate, the rate of Interest on Excess Reserves and 1 month LIBOR) will drive the yield on assets and liabilities contractually tied to such rates higher or lower. Under either environment, it is expected that changes in funding costs and

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balance sheet hedging income will only somewhat offset the change in asset yields. Further, the 12-month interest rate sensitivity will increase throughout 2022 driven by receive fixed hedge maturities that begin in the third quarter of 2022. Importantly, the potential to retain "surge" deposits with lower than expected repricing behavior represents an opportunity for further net interest income growth in the increasing rate scenario as well.

Net interest income remains exposed to intermediate yield curve tenors. While this was a headwind to net interest income during the pandemic, it represents a tailwind to net interest income growth as the yield curve rises, or steepens. An increase in intermediate and long-term interest rates (such as intermediate to longer-term U.S. Treasuries, swap and mortgage rates) will drive yields higher on certain fixed rate, newly originated or renewed loans, increase prospective yields on certain investment portfolio purchases, and reduce amortization of premium expense on existing securities in the investment portfolio. The opposite is true in an environment where intermediate and long-term interest rates fall. Approximately 70% of fixed rate asset production is at the 5-year tenor point or shorter.

The interest rate sensitivity analysis presented below in Table 25 is informed by a variety of assumptions and estimates regarding the progression of the balance sheet in both the baseline scenario as well as the scenarios of instantaneous and gradual shifts in the yield curve. Though there are many assumptions which affect the estimates for net interest income, those pertaining to deposit pricing, deposit mix and overall balance sheet composition are particularly impactful. Given the uncertainties associated with the prolonged period of low interest rates and industry liquidity, management evaluates the impact to its sensitivity analysis of these key assumptions. Sensitivity calculations are hypothetical and should not be considered to be predictive of future results.

The Company’s baseline balance sheet assumptions include management's best estimate for balance sheet growth in the coming 12 months. However, the behavior of pandemic-related "surge" deposits under a rising rate scenario is uncertain. Since year-end 2019, the last period-end free from the effects of COVID-19, deposit balances have increased by approximately $39 billion, exclusive of deposits acquired in the EnerBank acquisition, and approximately $25 billion of the increase was determined to be attributable to pandemic-related surge deposits. Therefore, Table 25 includes two balance sheet scenarios to help inform a potential range of outcomes. The first is an opportunity scenario, and assumes that these deposits behave more like stable, legacy balances, which is consistent with historical disclosures. The second scenario assumes that these depositors will be more sensitive to rate, requiring a higher interest rate in order to hold their balances with the bank. For this scenario, the projected "surge" deposit balance is approximately $25 billion. These deposits, including non-interest bearing products, are attributed with an approximate 70% repricing beta in rising rate scenarios. Importantly, the impact to net interest income under a changing rate environment is the same whether the "surge" deposit balances are held at a higher beta or the balances attrite and the funding is replaced with wholesale sources. Given the evolving nature of the environment, estimates have been conservatively derived. Should the balances remain with the Company longer or demonstrate less sensitivity to interest rates, there is potential for upside (e.g. the opportunity scenario). The disclosure in Table 25 does not prescribe a view as to the longevity of surge deposits on the balance sheet.

The behavior of deposit pricing in response to changes in interest rate levels is largely informed by analyses of prior rate cycles. In the base case scenario and falling rate scenarios in Table 25, interest-bearing deposit rates remain in the single digits. The deposit beta model is dynamic across both interest rate level and time. Currently, the Scenario One gradual +100 basis point shock outlined in the table below includes an approximate 20% to 25% interest-bearing deposit beta for legacy deposits. Again, the "surge" deposit interest-bearing deposit beta is bookended in each scenario, assuming legacy betas and a 75% beta, respectively. Deposit pricing outperformance or underperformance of 5% in that scenario would increase or decrease net interest income by approximately $31 million, respectively.

In rising rate scenarios only, management assumes that the mix of legacy deposits will change versus the base case as informed by analyses of prior rate cycles. Management assumes that in rising rate scenarios, some shift from non-interest bearing to interest-bearing products will occur. The magnitude of the shift is rate dependent and equates to approximately $3 billion over 12 months in the gradual +100 basis point scenario in Table 25.

The table below summarizes Regions' positioning over the next 12 months in various parallel yield curve shifts (i.e., including all yield curve tenors). The scenarios are inclusive of all interest rate hedging activities. More information regarding hedges is disclosed in Table 26 and its accompanying description. Importantly, outstanding receive-fixed cash flow hedges begin to mature in September 2022. The hedge maturity profile will begin to add asset sensitivity at a time when markets currently expect the FOMC to increase short-term interest rates.

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Table 25—Interest Rate Sensitivity

[[GREPCENT_TABLE]]
[["","Scenario One: Estimated Annual Changein Net Interest IncomeDecember 31, 2021(1)(2)(3)","","Scenario Two: Estimated Annual Change in Net Interest Income December 31, 2021(1)(2)(4)"],["","(In millions)"],["Gradual Change in Interest Rates"],["+ 200 basis points","$","482","","","$","225"],["+ 100 basis points","263","","","134"],["- 100 basis points (floored)(5)","(134)","","","(134)"],["Instantaneous Change in Interest Rates"],["+ 200 basis points","$","613","","","$","297"],["+ 100 basis points","350","","","192"],["- 100 basis points (floored)(5)","(154)","","","(154)"]]
[[/GREPCENT_TABLE]]

________

(1)Disclosed interest rate sensitivity levels represent the 12-month forward looking net interest income changes as compared to market forward rate cases and include expected balance sheet growth and remixing.

(2)All cash flow hedges transacted are now fully reflected within the measurement horizon (see Table 27 for additional information regarding hedge start and maturity dates).

(3)Scenario assumes all deposits (including "surge" deposits) perform consistently with historical experiences.

(4)Scenario accounts for uncertainty in "surge" deposit balances. Assumes an approximate 70% beta on "surge" balances (approximately $25 billion projected "surge" deposit balance).

(5)The -100 basis point (floored) scenario represents a rate shock where all rates are floored at 12-month average historical lows.

Regions has established scenarios by which yield curve tenors will fall to a consistent level. The shock magnitude for each tenor, when compared to market forward rates, equates to the lesser of the shock scenario amount, or a rate equal to the historical 12-month average minimum. For example, the 10 year Treasury yield falls to 81 basis points. Further, the scenarios presented do not allow for negative rates. The falling rate scenarios in Table 25 above quantify the expected impact for both gradual and instantaneous shocks under this environment.

Interest rate movements may also have an impact on the value of Regions’ securities portfolio, which can directly impact the carrying value of shareholders’ equity. Regions from time to time may hedge these price movements with derivatives (as discussed below).

Derivatives—Regions uses financial derivative instruments for management of interest rate sensitivity. ALCO, which consists of members of Regions’ senior management team, in its oversight role for the management of interest rate sensitivity, approves the use of derivatives in balance sheet hedging strategies. Derivatives are also used to offset the risks associated with customer derivatives, which include interest rate, credit and foreign exchange risks. The most common derivatives Regions employs are forward rate contracts, Eurodollar futures contracts, interest rate swaps, options on interest rate swaps, interest rate caps and floors, and forward sale commitments.

Forward rate contracts are commitments to buy or sell financial instruments at a future date at a specified price or yield. A Eurodollar futures contract is a future on a Eurodollar deposit. Eurodollar futures contracts subject Regions to market risk associated with changes in interest rates. Because futures contracts are cash settled daily, there is minimal credit risk associated with Eurodollar futures. Interest rate swaps are contractual agreements typically entered into to exchange fixed for variable (or vice versa) streams of interest payments. The notional principal is not exchanged but is used as a reference for the size of interest settlements. Interest rate options are contracts that allow the buyer to purchase or sell a financial instrument at a predetermined price and time. Forward sale commitments are contractual obligations to sell market instruments at a future date for an already agreed-upon price. Foreign currency contracts involve the exchange of one currency for another on a specified date and at a specified rate. These contracts are executed on behalf of the Company's customers and are used by customers to manage fluctuations in foreign exchange rates. The Company is subject to the credit risk that another party will fail to perform.

Regions has made use of interest rate swaps and floors in balance sheet hedging strategies to effectively convert a portion of its fixed-rate funding position to a variable-rate position, to effectively convert a portion of its fixed-rate debt securities available for sale portfolio to a variable-rate position, and to effectively convert a portion of its variable-rate loan portfolios to fixed-rate. Regions also uses derivatives to economically manage interest rate and pricing risk associated with its mortgage origination business. In the period of time that elapses between the origination and sale of mortgage loans, changes in interest rates have the potential to cause a decline in the value of the loans in this held-for-sale portfolio. Futures contracts and forward sale commitments are used to protect the value of the loan pipeline and loans held for sale from changes in interest rates and pricing.

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The following table presents additional information about hedging interest rate derivatives used by Regions to manage interest rate risk:

Table 26—Hedging Derivatives by Interest Rate Risk Management Strategy

[[GREPCENT_TABLE]]
[["","December 31, 2021"],["","Notional Amount","","","","Weighted-Average (1)"],["","","","","","Maturity (Years)","","Receive Rate","","Pay Rate"],["","(Dollars in millions)"],["Derivatives in fair value hedging relationships:"],["Receive variable/pay fixed - debt securities available for sale","$","6,500","","","","","","","1.0","","","0.8","%","","0.8","%"],["Receive fixed/pay variable - borrowed funds","1,400","","","","","","","4.8","","","0.6","","","0.1"],["Derivatives in cash flow hedging relationships:"],["Receive fixed/pay variable - floating-rate loans","20,650","","","","","","","1.8","","","0.8","","","0.1"],["Total derivatives designated as hedging instruments","$","28,550"]]
[[/GREPCENT_TABLE]]

_________

(1)Variable rate indexes on hedge contracts reference a combination of short-term LIBOR benchmarks, primarily 1 month LIBOR.

During the fourth quarter of 2021, $6.5 billion of forward-starting, receive variable/pay fixed fair value hedges of debt securities available for sale were executed. These forward-starting fair value hedges begin in September 2022 and mature in December 2022 which adds interest rate exposure at the end of the third quarter of 2022. Also in the fourth quarter of 2021, the Company replaced $3.5 billion in interest rate floor cash flow hedge notional with similar maturity receive fixed/pay variable cash flow hedge notional. Additionally, $2.5 billion in receive fixed/pay variable cash flow hedge notional was terminated and replaced to shorten a portion of future hedge exposure and $150 million in receive fixed/pay variable cash flow hedge notional was added in lieu of securities portfolio reinvestment.

The following table presents the average asset hedge notional amounts that are active during each of the quarterly periods in 2022 and later annual periods. In the fourth quarter of 2022, $9.4 billion in receive fixed/pay variable swaps will mature, of which $2.0 billion mature on October 1, 2022, and all asset hedge notional amounts mature prior to the end of 2025.

Table 27—Schedule of Average Notional for Asset Hedging Derivatives

[[GREPCENT_TABLE]]
[["","","Average Active Notional Amount"],["","","Quarters Ended (1)","","Years Ended"],["","","3/31/2022","","6/30/2022","","9/30/2022","","12/31/2022","","2023","","2024","","2025"],["","","(In millions)"],["Asset hedging relationships:"],["Receive fixed/pay variable swaps","","$","20,533","","","$","20,650","","","$","20,650","","","$","16,988","","","$","9,345","","","$","6,484","","","$","1,445"],["Receive variable/pay fixed swaps","","\u2014","","","\u2014","","","1,060","","","5,299","","","\u2014","","","\u2014","","","\u2014"],["Net receive fixed/pay variable swaps","","$","20,533","","","$","20,650","","","$","19,590","","","$","11,689","","","$","9,345","","","$","6,484","","","$","1,445"]]
[[/GREPCENT_TABLE]]

_________

(1)All cash flow hedges are reflected within the 12-month measurement horizon and included in income sensitivity levels as disclosed in Table 25.

Regions manages the credit risk of these instruments in much the same way as it manages credit risk of the loan portfolios by establishing credit limits for each counterparty and through collateral agreements for dealer transactions. For non-dealer transactions, the need for collateral is evaluated on an individual transaction basis and is primarily dependent on the financial strength of the counterparty. Credit risk is also reduced significantly by entering into legally enforceable master netting agreements. When there is more than one transaction with a counterparty and there is a legally enforceable master netting agreement in place, the exposure represents the net of the gain and loss positions with and collateral received from and/or posted to that counterparty. All hedging interest rate swap derivatives traded by Regions are subject to mandatory clearing. The counterparty risk for cleared trades effectively moves from the executing broker to the clearinghouse allowing Regions to benefit from the risk mitigation controls in place at the respective clearinghouse. The “Credit Risk” section in this report contains more information on the management of credit risk.

Regions also uses derivatives to meet the needs of its customers. Interest rate swaps, interest rate options and foreign exchange forwards are the most common derivatives sold to customers. Other derivative instruments with similar characteristics

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are used to hedge market risk and minimize volatility associated with this portfolio. Instruments used to service customers are held in the trading account, with changes in value recorded in the consolidated statements of income.

The primary objective of Regions’ hedging strategies is to mitigate the impact of interest rate changes, from an economic perspective, on net interest income and other financing income and the net present value of its balance sheet. The overall effectiveness of these hedging strategies is subject to market conditions, the quality of Regions’ execution, the accuracy of its valuation assumptions, counterparty credit risk and changes in interest rates.

See Note 20 "Derivative Financial Instruments and Hedging Activities" to the consolidated financial statements for a tabular summary of Regions’ year-end derivatives positions and further discussion.

Regions accounts for residential MSRs at fair market value with any changes to fair value being recorded within mortgage income. Regions enters into derivative transactions to economically mitigate the impact of market value fluctuations related to residential MSRs. Derivative instruments entered into in the future could be materially different from the current risk profile of Regions’ current portfolio.

LIBOR TRANSITION

On March 5, 2021, the FCA announced that LIBOR will not be available for use after December 31, 2021. Further, existing contracts referencing 1-week or 2-month USD LIBOR settings must be remediated no later than December 31, 2021. Regions successfully remediated contracts referencing 1-week or 2-month USD LIBOR prior to December 31, 2021. Additionally, Regions ceased origination of all new LIBOR-based lending prior to December 31, 2021. Existing contracts referencing all other USD LIBOR settings must be remediated no later than June 30, 2023. Regions holds instruments that may be impacted by the discontinuance of LIBOR, including loans, investments, derivative products, floating-rate obligations, and other financial instruments that use LIBOR as a benchmark rate. However, Regions' LIBOR exposure is primarily in settings other than 1-week or 2-month USD LIBOR. The Company has established a LIBOR Transition Program, which includes dedicated leadership and staff, with all relevant business lines and support groups engaged. As part of this program, the Company continues to identify, assess, and monitor risks associated with the discontinuation of LIBOR. Steps to mitigate risks associated with the transition are being overseen by Regions’ Executive LIBOR Steering Committee. Regions is following industry efforts to develop alternative reference rates and is operationally ready to offer new benchmarks as they are adopted by regulatory agencies and industry groups.

Regions has taken proactive steps to facilitate the transition on behalf of customers, which include:

•The adoption and ongoing implementation of fallback provisions that provide for the determination of replacement rates for LIBOR-linked financial products.

•The adoption of new products linked to alternative reference rates, such as adjustable-rate mortgages, consistent with guidance provided by the U.S. regulators, ARRC, and GSEs.

•The discontinuation of LIBOR-based commercial lending prior to December 31, 2021, consistent with regulatory guidelines. The Company has already made preparations to provide multiple alternative rates based on market competition and demand. Regions has participated in, evaluated, or made preparations to lend with a number of other indexes, including SOFR, BSBY, and AMERIBOR.

Regions continues to evaluate its financial and operational infrastructure in its effort to transition all financial and strategic processes, systems, and models to reference rates other than LIBOR. Regions has also implemented processes to educate all client-facing associates and coordinate communications with customers regarding the transition.

As of December 31, 2021, Regions had approximately $34.2 billion of total outstanding commercial and investor real estate loans and approximately $930 million of total consumer loans that reference LIBOR. Regions also has securities within its investment portfolio of $317 million that reference LIBOR. Furthermore, as of December 31, 2021. Regions' Series B and C preferred stock had total carrying values of $433 million and $490 million, respectively and reference LIBOR when their dividend rate begins to float after 2023.

In the third quarter of 2020, Regions adopted temporary accounting relief for affected transactions that reference LIBOR. See Note 1 “Summary of Significant Accounting Policies” to the consolidated financial statements for details.

MARKET RISK—PREPAYMENT RISK

Regions, like most financial institutions, is subject to changing prepayment speeds on mortgage-related assets under different interest rate environments. Prepayment risk is a significant risk to earnings and specifically to net interest income. For example, mortgage loans and other financial assets may be prepaid by a borrower, so that the borrower may refinance its obligations at lower rates. As loans and other financial assets prepay in a falling rate environment, Regions must reinvest these funds in lower-yielding assets. Prepayments of assets carrying higher rates reduce Regions’ interest income and overall asset yields. Conversely, in a rising rate environment, these assets will prepay at a slower rate, resulting in opportunity cost by not having the cash flow to reinvest at higher rates. Prepayment risk can also impact the value of securities and the carrying value

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of equity. Regions’ greatest exposures to prepayment risks primarily rest in its mortgage-backed securities portfolio, the mortgage fixed-rate loan portfolio and the residential MSR, all of which tend to be sensitive to interest rate movements. Each of these assets is also exposed to prepayment risk due to factors which are not necessarily the result of interest rates, but rather due to changes in policies or programs related, either directly or indirectly, to the U.S. Government's governance over certain lending and financing within the mortgage market. Such policies can work to either encourage or discourage financing dynamics and represent a risk that is extremely difficult to forecast and may be the result of non-economic factors. The Company attempts to monitor and manage such exposures within reasonable expectations while acknowledging all such risks cannot be foreseen or avoided. Further, Regions has prepayment risk that would be reflected in non-interest income in the form of servicing income on the residential MSRs. Regions actively monitors prepayment exposure as part of its overall net interest income forecasting and interest rate risk management.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is an important factor in the financial condition of Regions and affects Regions’ ability to meet the needs of the Company and its customers. Regions’ goal in liquidity management is to maintain liquidity sources and reserves sufficient to satisfy the cash flow requirements of depositors and borrowers, under normal and stressed conditions. Accordingly, Regions maintains a variety of liquidity sources to fund its obligations, as further described below. Furthermore, Regions performs specific procedures, including scenario analyses and stress testing to evaluate and maintain appropriate levels of available liquidity in alignment with liquidity risk.

Regions' operation of its business provides a generally balanced liquidity base which is comprised of customer assets, consisting principally of loans, and funding provided by customer deposits and borrowed funds. Maturities in the loan portfolio provide a steady flow of funds, and are supplemented by Regions' relatively steady deposit base. See Note 4 "Loans", Note 10 "Deposits", and Note 11 "Borrowed Funds" to the consolidated financial statements for further discussion.

The securities portfolio also serves as a primary source and storehouse of liquidity. Proceeds from maturities and principal and interest payments of securities provide a continual flow of funds available for cash needs (see Note 3 "Debt Securities" to the consolidated financial statements). Furthermore, the highly liquid nature of the portfolio (for example, the agency guaranteed MBS portfolio) can be readily used as a source of cash through various secured borrowing arrangements. Cash reserves, liquid assets and secured borrowing capabilities (including borrowing capacity at the FHLB, as discussed below) aid in the management of liquidity in normal and stressed conditions, and/or meeting the need of contingent events such as obligations related to potential litigation (see Note 23 "Commitments, Contingencies and Guarantees" to the consolidated financial statements for additional discussion of the Company’s funding requirements.) Liquidity needs can also be met by borrowing funds in national money markets, though Regions does maintain limits on short-term unsecured funding due to the volatility that can affect such markets.

The balance with the FRB is the primary component of the balance sheet line item, “interest-bearing deposits in other banks.” At December 31, 2021, Regions had approximately $28.1 billion in cash on deposit with the FRB and other depository institutions, an increase from approximately $16.4 billion at December 31, 2020, due to the significant increase in deposits associated with government programs offered in relation to COVID-19. The average balance held with the FRB was approximately $22.8 billion and $7.7 billion during 2021 and 2020, respectively. Refer to the "Cash and Cash Equivalents" section for more information.

Regions’ borrowing availability with the FRB as of December 31, 2021, based on assets pledged as collateral on that date, was $13.3 billion.

Regions’ financing arrangement with the FHLB adds additional flexibility in managing the Company's liquidity position. As of December 31, 2021, Regions had no FHLB borrowings and its total borrowing capacity from the FHLB totaled approximately $16.2 billion. FHLB borrowing capacity is contingent on the amount of collateral pledged to the FHLB. Regions Bank pledged certain eligible securities and loans as collateral for the outstanding FHLB advances. Additionally, investment in FHLB stock is required in relation to the level of outstanding borrowings. The FHLB has been and is expected to continue to be a reliable and economical source of funding. Refer to Note 7 "Other Earning Assets" to the consolidated financial statements for additional information.

Regions maintains a shelf registration statement with the SEC that can be utilized by Regions to issue various debt and/or equity securities. Additionally, Regions' Board has authorized Regions Bank to issue up to $10 billion in aggregate principal amount of bank notes outstanding at any one time. Refer to Note 11 "Borrowed Funds" to the consolidated financial statements for additional information.

Regions may, from time to time, consider opportunistically retiring outstanding issued securities, including subordinated debt in privately negotiated or open market transactions for cash or common shares. Regulatory approval would be required for retirement of some instruments. See Note 14 "Shareholders' Equity and Accumulated Other Comprehensive Income (Loss)" to the consolidated financial statements for additional information.

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In addition to the liquidity sources and obligations discussed above, the Company also has other contractual obligations, which include unused commitments to extend credit, property leases, employee benefit obligations, and commitments to fund low income housing tax partnerships. See Note 23 "Commitments, Contingencies and Guarantees", Note 13 "Leases", Note 17 "Employee Benefit Plans", and Note 2 "Variable Interest Entities" to the consolidated financial statements for further discussion regarding these obligations.

Regions' liquidity policy requires the holding company to maintain cash sufficient to cover the greater of (1) 18 months of debt service and other cash needs or (2) a minimum cash balance of $500 million. Cash and cash equivalents at the holding company totaled $1.5 billion at December 31, 2021. Overall liquidity risk limits are established by the Board through its Risk Appetite Statement and Liquidity Policy. The Company's Board, LROC and ALCO regularly review compliance with the established limits.

CREDIT RISK

Regions’ objective regarding credit risk is to maintain a credit portfolio that provides for stable credit costs with acceptable volatility through an economic cycle. Regions has various processes to manage credit risk as described below. In order to assess the risk profile of the loan portfolio, Regions considers risk factors within the loan portfolio segments and classes, the current U.S. economic environment and that of its primary banking markets, as well as counterparty risk. See the "Portfolio Characteristics" section found earlier in this report for further information regarding the risk characteristics of each loan type. See further discussion of the current U.S. economic environment in the "Economic Environment in Regions' Banking Markets" section and counterparty risk below.

Management Process

Credit risk is managed by maintaining a sound credit risk culture, throughout all lines of defense, which ensures that the levels and types of risk taken are aligned with Regions' credit risk appetite. The credit quality of borrowers and counterparties has a significant impact on Regions' earnings; however, the nature of the risk differs by each of the defined businesses which engage in multiple forms of commercial, investor real estate and consumer lending. Regions categorizes the credit risks it faces by asset quality, counterparty exposure, and diversification levels which provides a structure to assess credit risk and guides credit decision-making. Credit policies, another key component of Regions' culture, are designed and adjusted, as needed, to promote sound credit risk management. These policies guide lending activities in a manner consistent with Regions' strategy and provide a framework for achieving asset quality and earnings objectives.

Effective credit risk management requires coordinated identification, measurement, mitigation, monitoring and reporting of credit risk exposure, credit quality, and emerging risk trends. Accordingly, Regions has implemented a credit risk governance structure that provides oversight from the Board to the organizational units in order to maintain open channels of communication.

Occasionally, borrowers and counterparties do not fulfill their obligations and Regions must take steps to mitigate and manage losses. Teams are in place to appropriately identify and manage nonperforming loans, collections, loan modifications, and loss mitigation efforts. Regions maintains an allowance for credit losses that management considers adequate to absorb expected losses in the portfolio.

For a discussion of the process and methodology used to calculate the allowance for credit losses refer to the “Critical Accounting Estimates and Related Policies” section found earlier in this report, Note 1 “Summary of Significant Accounting Policies” and Note 5 "Allowance for Credit Losses" to the consolidated financial statements. Details regarding the allowance for credit losses, including an analysis of activity from the previous year’s total, are included in Table 16 "Allowance for Credit Losses". Also, refer to Table 17 "Allowance Allocation" for details pertaining to management’s allocation of the allowance to each loan category.

Responsibility and accountability for effectively managing all risks, including credit risk, in the various business units lies with the first line of defense. Risk Management, in the second line of defense, oversees, assesses and effectively challenges the risk-taking activities of the first line of defense. Finally, Credit Risk Review provides ongoing oversight, as a third line of defense function, of the credit portfolios to ensure Regions’ activities, and controls, are appropriate for the size, complexity and risk profile of the Company.

Counterparty Risk

Counterparty risk is the risk that the counterparty to a transaction or contract could be unable or unwilling to fulfill its contractual or legal obligations. Exposure may be to a financial institution (such as a commercial bank, an insurance company, a broker dealer, etc.) or a corporate client.

Regions has a centralized approach to approval, management, and monitoring of counterparty exposure. The Counterparty Risk Management Group is responsible for the independent credit risk management of financial institution counterparties and their affiliates. Market Risk Management is responsible for the measurement and stress testing of counterparty exposures. The Corporate and Commercial Credit groups are responsible for the independent credit risk

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management of client side counterparties.

Financial institution exposure may result from a variety of transaction types generated in one or more departments of the Company. Aggregate exposure limits are established to manage the exposure generated by various areas of the Company. Counterparty client credit risk arises when Regions sells a risk management product to hedge risks in the client’s business. Exposures to counterparties are aggregated across departments and regularly reported to senior management.

INFORMATION SECURITY RISK

Regions faces information security risks, such as evolving and adaptive cyber-attacks that are conducted regularly against financial institutions in attempts to compromise or disable information systems. Such attempts have increased in recent years, and the trend is expected to continue for a number of reasons, including increases in technology-based products and services used by us and our customers, the growing use of mobile, cloud, and other emerging technologies, and the increasing sophistication and activities of organized crime, hackers, terrorists, nation-states, activists and other external parties or fraud on the part of employees.

Regions devotes significant financial and non-financial resources to identify and mitigate threats to the confidentiality, availability and integrity of its information systems. Regions regularly assesses the threats and vulnerabilities to its environment so it can update and maintain its systems and controls to effectively mitigate these risks. Layered security controls are designed to complement each other to protect customer information and transactions. Regions regularly tests its control environment utilizing practices such as penetration testing and more targeted assessments to ensure its controls are working as expected. Regions will continue to commit the resources necessary to mitigate these growing cyber risks, as well as continue to develop and enhance controls, processes and technology to respond to evolving disruptive technology and to protect its systems from attacks or unauthorized access. In addition, Regions maintains a strong commitment to a comprehensive risk management program that includes due diligence and oversight of third-party relationships with vendors.

As a result of the COVID-19 pandemic, Regions has experienced a modest increase in cyber events, such as phishing attempts and malicious traffic from outside the U.S. However, the Company's layered control environment has effectively detected and prevented any material impact related to these events.

Regions’ system of internal controls also incorporates an organization-wide protocol for the appropriate reporting and escalation of information security matters to management and the Board, to ensure effective and efficient resolution and, if necessary, disclosure of any matters. The Board is actively engaged in the oversight of Regions’ continuous efforts to reinforce and enhance its operational resilience and receives education to ensure that their oversight efforts accommodate for the ever-evolving information security threat landscape. The Board monitors Regions’ information management risk policies and practices primarily through its Risk Committee, which oversees areas of operational risk such as information technology activities; risks associated with development, infrastructure, and cybersecurity; approval and oversight of internal and third-party information security risk assessments, strategies, policies and programs; and disaster recovery, business continuity, and incident response plans. Additionally, the Board’s Audit Committee regularly reviews Regions’ cybersecurity practices, mainly by receiving reports on the cybersecurity management program prepared by the Chief Information Security Officer, Risk Management, and Internal Audit. The Board annually reviews the information security program and, through its various committees, is briefed at least quarterly on information security matters.

Regions participates in information sharing organizations such as FS-ISAC to gather and share information with peer banks and other financial institutions to better prepare and protect its information systems from attack. FS-ISAC is a nonprofit organization whose objective is to protect the financial services sector against cyber and physical threats and risk. It acts as a trusted third party that provides anonymity to allow members to submit threat, vulnerability and incident information in a non-attributable and trusted manner so information that would normally not be shared is instead made available to other members for the greater good of the membership. In addition to FS-ISAC, Regions is a member of BITS. BITS serves the financial community and its members by providing industry best practices on a variety of security and fraud topics.

Regions has contracts with vendors to provide denial of service mitigation. These vendors have also committed the necessary resources to support Regions in the event of a cyber event. Even though Regions devotes significant resources to combat cyber security risks, there is no guarantee that these measures will provide absolute security. As an additional security measure, Regions has engaged a computer forensics firm and an industry-leading consulting firm on retainer in case of a cyber event. Regions has also developed and maintains robust business continuity and disaster recovery plans that it could implement in the event of a cyber event to mitigate the effects of any such event and minimize necessary recovery time. Some of Regions' financial risk exposure with respect to data breaches may be offset by applicable insurance.

Even when Regions successfully prevents cyber-attacks to its own network, the Company may still incur losses that result from customers' account information being obtained through breaches of retailers' networks that enable customer transactions. The related fraud losses, as well as the costs of re-issuing new cards, may impact Regions' financial results. In addition, Regions also relies on some vendors to provide certain business infrastructure components, and although Regions actively assesses and monitors the information security capabilities of these vendors, Regions' reliance on them may also increase exposure to information security risk.

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In the event of a cyber-attack or other data breach, Regions may be required to incur significant expenses, including with respect to remediation costs, costs of implementing additional preventative measures, addressing any reputational harm and addressing any related regulatory inquiries or civil litigation arising from the event.

ACQUISITIONS

Ascentium

On April 1, 2020, Regions completed its acquisition of an equipment finance company Ascentium Capital, LLC. The acquisition gives Regions the ability to increase business loans and leases to small business customers using Ascentium's tech-enabled same-day credit decision and funding capabilities.

As a result of the acquisition Regions recorded approximately $2.4 billion of assets and assumed $1.9 billion of liabilities. Of the total assets acquired, $1.9 billion were loans and leases that are included in Regions' commercial and industrial loan portfolio. Of the liabilities assumed, $1.8 billion were long-term borrowings. Regions subsequently repaid a significant portion of the borrowings, which were extinguished as of December 31, 2021.

Of the loans acquired, a portion were determined to be credit deteriorated on the date of purchase. Purchased loans that have experienced a more than insignificant deterioration in credit quality since origination are considered to be credit deteriorated. PCD loans are initially recorded at purchase price less the ALLL recognized at acquisition. Subsequent credit loss activity is recorded within the provision for credit losses.

Regions recorded PCD loans of $873 million as a result of the acquisition, which was reflective of a nominal discount. Regions recorded an ALLL related to these loans of $60 million, which was included in the total acquired asset value as part of the acquisition. The non-credit discount related to Ascentium's PCD loans and the fair value mark on non-PCD loans which were immaterial.

In conjunction with the acquisition, Regions recognized goodwill of $348 million and other intangible assets. Intangible assets, comprised of trademarks, customer lists and other intangibles, were immaterial. Intangible assets will be amortized over the expected useful life of each recognized asset.

EnerBank

On October 1, 2021, Regions completed its acquisition of home improvement lender EnerBank. The acquisition of EnerBank allows Regions to provide customers with home improvement financing solutions using EnerBank's loan programs and digital solutions to support a wide range of home improvement needs.

As a result of the acquisition, Regions recorded approximately $3.3 billion of assets of which $3.1 billion were loans that are included in Regions' other consumer loan portfolio. Regions also assumed $2.8 billion of liabilities, consisting almost entirely of time deposits that the Company expects will attrite over time. The premiums recorded related to the acquired assets and assumed liabilities were immaterial.

Fair value estimates are considered preliminary as of December 31, 2021. Fair value estimates, including loans, intangible assets and goodwill, are subject to change for up to one year after the acquisition date as additional information becomes available.

Regions recorded PCD loans of $198 million as a result of the acquisition. Regions recorded an immaterial ALLL related to these loans, which was included in the total acquired asset value as part of the acquisition.

In conjunction with the acquisition, Regions recognized goodwill of $361 million and other intangible assets of $176 million. The other intangible assets were primarily comprised of customer relationship intangibles and will be amortized over the expected useful life of each recognized asset.

Sabal

On December 1, 2021, Regions completed its acquisition of Sabal, a financial services firm that leverages technology to facilitate off-balance-sheet lending in the small balance commercial real estate market.

As a result of the acquisition, Regions recorded approximately $360 million of assets, which included loans held for sale totaling $82 million, as well as a commercial mortgage servicing asset and securities that were immaterial. Regions also assumed $114 million of liabilities, consisting primarily of borrowings that were paid off following closing.

In conjunction with the acquisition, Regions recognized goodwill of $146 million and other intangible assets that were immaterial.

Fair value estimates are considered preliminary as of December 31, 2021. Fair value estimates, including acquired assets and goodwill, are subject to change for up to one year after the acquisition date as additional information becomes available.

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FINANCIAL DISCLOSURE AND INTERNAL CONTROLS

Regions maintains internal controls over financial reporting, which generally include those controls relating to the preparation of the consolidated financial statements in conformity with GAAP. Regions’ process for evaluating internal controls over financial reporting starts with understanding the risks facing each of its functions and areas, how those risks are controlled or mitigated, and how management monitors those controls to ensure that they are in place and effective. These risks, control procedures and monitoring tools are documented in a standard format. This format not only documents the internal control structures over all significant accounts, but also places responsibility on management for establishing feedback mechanisms to ensure that controls are effective.

Regions also has processes to ensure appropriate disclosure controls and procedures are maintained. These controls and procedures as defined by the SEC are generally designed to ensure that financial and non-financial information required to be disclosed in reports filed with the SEC is reported within the time periods specified in the SEC’s rules and forms, and that such information is communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Regions’ Disclosure Review Committee, which includes representatives from the legal, tax, finance, risk management, accounting, investor relations, and treasury departments, meets quarterly to review recent internal and external events to determine whether all appropriate disclosures have been made in reports filed with the SEC. In addition, the CEO and CFO meet quarterly with the SEC Filings Review Committee, which includes senior representatives from accounting, legal, risk management, treasury, and the business groups. The SEC Filings Review Committee provides a forum in which senior executives disclose to the CEO and CFO any known significant deficiencies or material weaknesses in Regions’ internal controls over financial reporting, and provide reasonable assurance that the financial statements and other contents of the Company’s Form 10-K and 10-Q filings are accurate, complete, and timely. As part of this process, certifications of internal control effectiveness are obtained from Regions’ associates who are responsible for maintaining and monitoring effective internal controls over financial reporting. These certifications are reviewed and presented to the CEO and CFO as support of the Company’s assessment of internal controls over financial reporting. The Form 10-K is presented to the Audit Committee of the Board of Directors for approval, and the Forms 10-Q are reviewed by the Audit Committee. Financial results and other financial information are also reviewed with the Audit Committee on a quarterly basis.

As required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, the CEO and the CFO review and make certifications regarding the accuracy of Regions’ periodic public reports filed with the SEC, as well as the effectiveness of disclosure controls and procedures and internal controls over financial reporting. With the assistance of the financial review committees noted in the previous paragraph, Regions continually assesses and monitors disclosure controls and procedures and internal controls over financial reporting, and makes refinements as necessary.

COMPARISON OF 2020 WITH 2019

Refer to the “2020 Results” and "Operating Results" sections of Management's Discussion and Analysis of the Annual Report on Form 10-K for the year ended December 31, 2020, for comparisons of 2020 with 2019.